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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999, OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO .
COMMISSION FILE NUMBER: 000-26952
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SYNC RESEARCH, INC.
(Exact name of Registrant as specified in its charter)
DELAWARE 33-0676350
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
12 MORGAN
IRVINE, CA 92618
(Address of principal executive offices)
Registrant's telephone number, including area code: (949) 588-2070
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Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $0.001 par value per share
(Title of Class)
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Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days. Yes /X/ No / /
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained to
the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. / /
The aggregate market value of the voting stock held by non-affiliates
of the Registrant based upon the closing sale price of the Registrant's Common
Stock on the Nasdaq National Market on March 6, 2000 was approximately
$13,665,348 as of such date. Shares of Common Stock held by each executive
officer and director and by each person who owns 10% or more of the outstanding
Common Stock have been excluded in that such persons may be deemed to be
affiliates. This determination of affiliate status is not necessarily a
conclusive determination for other purposes.
There were 3,516,899 shares of Registrant's Common Stock issued and
outstanding as of March 6, 2000.
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PART I
ITEM 1. BUSINESS
Except for the historical information contained herein, the matters
discussed in this document are forward-looking statements. The Company wishes to
alert readers that the factors set forth in Item 7, under "Management's
Discussion and Analysis of Financial Condition and Results of Operations-Risk
Factors," including but not limited to fluctuations in operating results and
market conditions in the networking industry, involve risks and uncertainties
and 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.
OVERVIEW
Sync Research, Inc. ("Sync" or the "Company") develops, manufactures,
markets, supports and sells wide-area network ("WAN") access and management
products and services designed to economically and reliably support business
critical applications across carrier provided packetized transmission services,
such as frame relay.
As data bandwidth requirements increase, telecommunications service
providers, traditionally carriers, have implemented frame relay data services in
an effort to develop new revenue sources and improve competitiveness. Frame
relay, a low-latency, frame-switched WAN protocol, has experienced rapid growth
due to its speed and economy, stability, its deployment flexibility, and its
ability to combine incompatible "protocols," such as International Business
Machines Corporation ("IBM") mainframe Systems Network Architecture ("SNA") and
client/server Transmission Control Protocol/Internet Protocol ("TCP/IP"), onto a
single telecommunications circuit. Frame relay represents a cost-effective and
stable technology, that provides a smooth migration to asynchronous transfer
mode ("ATM") and other broadband services generally used in the backbone of many
of these service providers.
The Company's strategy is to produce highly reliable and value-added
network access devices and management software applications that are engineered
to support mission-critical applications over frame relay and other digital
services at the lowest possible overall cost of ownership. The Company's
FrameNode-TM- line of frame relay access devices ("FRADs") and frame relay
access routers converge business critical SNA, IP/IPX and voice/fax branch
applications across frame relay. Sync's circuit management solutions consists of
WAN probes and application software that improve the availability and
performance of frame relay networks by providing extensive problem isolation and
troubleshooting capabilities and proactive performance and service-level
management. Sync's TyLink-Registered Trademark- line of digital transmission
products including data service units and channel service units ("DSU/CSU") and
Integrated Services Digital Network ("ISDN") termination products, are the basic
elements that provide low cost connectivity to a digital WAN.
Today, many mainframe or similarly hosted data networks use expensive
leased lines to connect remote sites to central computing facilities or data
centers. Due to favorable carrier pricing and technical suitability, frame relay
is a less expensive, more efficient, direct substitute for such traditional
leased line connections and due to its maturity, is very stable as compared to
other technology based alternatives, including the internet or other IP based
services.
Sync follows a sales strategy relying primarily on a direct sales force
and leveraging resellers, distributors, OEM partners and a number of Regional
Bell Operating Companies ("RBOCs") and Interexchange Carriers ("IXCs") as
delivery channels for its products. Current partners include, AT&T, MCI WorldCom
("MCI"), Electronic Data Systems, Unisys and Diebold. The Company believes that
its relationships provide sufficient alternative channels of fulfillment to
serve the needs of middle and upper market customers. The Company utilizes a
distribution and value-added reseller ("VAR") channel and will utilize the
internet as the primary distribution channels for its digital transmission
products.
Sync does not have any dedicated international sales offices, however,
the Company sells its products through partners and resellers located in Europe
including Germany, France, UK and Ireland and in
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the Pacific Rim.
INDUSTRY BACKGROUND
SNA FOR BUSINESS CRITICAL APPLICATIONS
Historically, organizations have predominantly performed their
business-critical data processing predominantly on hierarchical, centralized
computer systems, mainly IBM mainframe or similar systems. These
transaction-oriented data processing applications have traditionally supported
such critical functions as branch banking, credit transactions, retail
point-of-sale transactions, inventory management and airline reservations.
Wide-area networks have been built to provide access to these applications from
geographically-dispersed branch offices in a "hub and spoke" model, in which as
many as several thousand remote sites are connected to one or two data
processing centers.
The critical nature of these business applications requires that
host-based systems deliver high availability with efficient and predictable
response times. IBM's SNA was designed and developed specifically to deliver
these benefits to remote terminals communicating across the current wide-area
network infrastructures, primarily leased lines. SNA has been widely deployed as
a network architecture for corporate wide-area networks since the late 1970s.
EMERGENCE OF IP AND CLIENT/SERVER COMPUTING
In the late 1980s, "client/server" computing emerged, expanding
capabilities of software applications and ease of local interconnection through
local area networks ("LANs"). To facilitate support, scalability and security,
client/server networks are being implemented by corporations in topologies that
parallel the traditional leased-line hub and spoke model of the mainframe SNA
network. In addition, as users increasingly demand higher bandwidth, savings and
quality, carriers and service providers are rolling out new packet based voice
and data services, including Asynchronous Digital Subscriber Line (ADSL), etc.
OUTSOURCING OF NETWORK SERVICES
Continuing deregulation and reformation within the worldwide
telecommunications market has resulted in a dramatic increase in the number of
carriers, service providers and other companies that outsource networking and
telecommunications support and services. In order to differentiate their
services, these "Service Providers" have deployed new data transport networks
based on packet and cell switched technologies; specifically frame relay,
Internet Protocol ("IP"), ATM and ADSL. Many end user organizations ("End
Users") have found these services to be cost-effective alternatives to private
leased line networks and have migrated all or part of their WAN infrastructures
including the planning, provisioning and management of their networks to their
Service Provider. These services often bundle telecommunications services with
the components necessary to connect customer sites to the network.
The shift from leased lines to these services has created a number of
challenges for End Users and Service Providers alike. Since a significant
portion of their WAN infrastructure is now controlled and managed by their
Service Providers, End Users have diminished visibility and control of
mission-critical applications that traverse the public switched virtual network
(PSVN). In turn, Service Providers have increased responsibility for end user
application performance and higher service level commitments, especially in
connection with managed network services offerings.
THE SYNC SOLUTION
Sync is a provider of WAN access, internetworking and management
products and related services that enable business-critical SNA and
client/server applications to be safely deployed over frame relay or other
packetized transmission services. Sync's products allow organizations to
leverage the performance, utility and cost advantages of these networks, while
maintaining the robustness, reliability and responsiveness of SNA and preserving
the sizable investment in legacy SNA applications, equipment, management
automation, diagnostic tools and staff training.
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PRODUCTS
Sync's current product offerings have focused almost exclusively on the
growing frame relay marketplace. The Company's product portfolio targets three
distinct frame relay market related opportunities. Combined, the products offer
a broad single vendor solution for deployment and support of mission-critical
applications over frame relay.
ACCESS INTERNETWORKING SOLUTIONS
The FrameNode-Registered Trademark- FRADs and frame relay access
routers reduce duplication in networks and recurring telecommunications costs by
converging SNA, legacy and client/server (IP/IPX) branch applications across a
frame relay WAN using a single access trunk. Sync FrameNodes-Registered
Trademark- successfully combine deterministic SNA transactions with bursty and
bandwidth-demanding client/server transmissions through a traffic prioritization
and bandwidth allocation capability.
Sync provides a broad range of serial-to-LAN conversion products under
the ConversionNode-TM- product name. The ConversionNode-TM- enables SNA and
other legacy serial controllers to interoperate over router-based internetworks
by providing serial-to-LAN conversion. It supports a wide-array of legacy
controllers, including SNA, asynchronous BSC3270 and BSC/RJE.
A number of large IBM-centric customers, such as Bear Sterns, First
Union Corporation ("First Union"), Electronic Data Systems, Experian, and VISA
International, have selected Sync's frame relay solutions.
CIRCUIT MANAGEMENT SOLUTIONS
Sync's circuit management technology consists of a series of WAN
monitoring probes and graphical applications. Together, these components allow
End Users to improve network availability and performance and reduce network
operating costs by enhancing problem isolation, identification and
troubleshooting and providing performance and service-level management
capabilities.
DIGITAL TRANSMISSION SOLUTIONS
Sync's TyLink-Registered Trademark- brand digital transmission products
support a wide range of digital access applications, including low-speed
56/64Kbps to high-speed T1/E1 models for leased line connectivity; and data,
voice and video integration on a single T1 trunk. The 7400 Series WAN Champion
is a high-capacity chassis system that can support up to 32 T1 interfaces. Its
port density and price/performance make it ideal for large-scale T1 termination
applications.
PRODUCT STRATEGY
Sync has developed a multifaceted product strategy that the Company
believes addresses many of the issues that are important to successful
deployment of frame relay (and IP) connectivity: access circuit and
service-level management, and high-speed digital transmission. The Company is
focusing its new product development efforts on creating new product
capabilities in these three areas. During 1999, the Company released its 4300
and 3700 families of integrated frame relay access products, which combine the
feature and functions of its frame relay access products, circuit management and
digital transmission products with alternative ISDN and Async point-to-point
(PPP) backup capabilities into one combined solution. The Company believes this
product provides a cost-effective solution that enhances high availability
through alternative bandwidth functionality. Going forward, Sync plans to
continue to leverage its technology strengths through the development of
products that support for higher speeds and increase its capabilities in
supporting Internet Protocol based applications. The Company expects that the
first of these new products will begin to become available to the general market
during mid 2000. However, there can be no assurance that the Company will be
able to introduce these new products on a timely basis, if at all, or that these
products will gain market acceptance. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations-Risk Factors-Rapid
Technological Change and New Products."
CUSTOMERS AND MARKETS
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Sync's three core WAN technologies: access internetworking, circuit
management and digital transmission are targeted at two macro markets:
enterprise middle market end user customers and service providers serving such
customers.
ENTERPRISE END USER CUSTOMERS
Sync's strategy is to provide a comprehensive product solution for
safely migrating mission-critical SNA and IP/IPX applications to frame relay and
other WAN technologies. In addition, the Company offers a broad range of
services to complement its products, including network design consulting, remote
network monitoring, onsite maintenance and technical assistance. The Company
believes that advantages to its customers include improved network reliability,
improved efficiencies in circuit and bandwidth utilization, and reduced capital,
telecommunications and operating costs. Sync has been successful in winning
several large end-user customers, however, the Company's primary focus is at the
AS400 enterprise user and middle market companies with 25 to 500 branch sites.
Many of these companies host their business critical applications on a
centralized basis in a leased line environment and can benefit from Sync's
solutions to provide a cohesive convergence of SNA and IP applications across
the same network. In addition, the Company believes that the larger
telecommunications equipment companies do not adequately serve these mid-sized
enterprises.
SERVICE PROVIDERS
The FrameNode-Registered Trademark- is also designed to be an effective
customer premises equipment (CPE) solution for managed service offerings. In
addition to its broad support for SNA, IP/IPX and certain legacy protocols, it
includes extensive end-to-end network management capabilities facilitate more
reliable and consistent service to customers, improved efficiency in circuit and
bandwidth provisioning, and reduced capital and operating costs for service
providers.
While enterprise customers view frame relay as a cost-effective vehicle
for converging remote SNA and IP/IPX applications, Sync believes they will
continue to demand the stability, resiliency and the management-rich attributes
of their leased line networks. Sync's circuit management technology provides
customers and service providers with the management capabilities necessary to
maximize network performance and availability requirements.
CUSTOMER BASE
The Company's products are used in a wide variety of industries worldwide by
both End Users and Service Providers. The Company has been in, but not limited
to, the banking and financial services; credit and transaction processing;
manufacturing and industrial; insurance; retail and network; and application
outsourcing industries. Sync's customer base includes but is not limited to,
First Union Corporation, Wells Fargo, Visa International, First Data Resources,
McJunkin Corporation, Piedmont Natural Gas, GEICO Insurance; Experian,
Electronics Data Systems Corporation (EDS), Korea Telecom, and Rhodes/Helig
Myers.
SALES AND PARTNER CHANNELS
The Company follows a sales strategy relying primarily on a U.S. based
direct sales force and leveraging resellers, distributors, and a number of
Service Providers as delivery channels for its products, including several
partners serving the international market. The Company utilizes a distribution
and value-added reseller ("VAR") channel and will utilize the internet as the
primary distribution channels for its digital transmission products. The Company
has from time to time entered into OEM relationships with selected
internetworking companies and will continue to develop such relationships as
appropriate.
DIRECT SALES
Sync's sales and marketing strategy focuses on developing relationships
with end-user middle market enterprises through its direct sales organization to
promote the Company's products and drive demand for Sync products and support
channel partners. The primary roles of the Company's sales force are (i) to
assist end user customers in addressing complex network problems; (ii) to
differentiate the
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features and capabilities of the Company's products from competitive
offerings; and (iii) provide support to channel partners as fulfillment
channels in meeting the needs of end-user customers. The Company believes
that its investment in direct sales enables the Company to monitor changing
customer requirements. As of December 31, 1999, the Company had 12 domestic
field sales and support personnel currently operating out of locations in 8
states. First Union Corporation, a direct sales customer, represented $1.8
million or 9.8% in 1999, $4.6 million or 18.5% in 1998, $1.5 million or 6.5%
in 1997of the Company's net revenues.
CHANNEL PARTNERS AND OTHER RESELLERS
The Company's indirect sales and marketing strategy focuses on
establishing channel partnerships with selected, leading networking companies
and carriers that serve the AS400 and/or middle market enterprises. Sync works
with its channel partners in various activities, including joint sales calls,
field training and support and custom product development. The Company currently
maintains marketing and sales arrangements with Service Providers such as
Sprint, MCI, Ameritech, EDS, Lucent Technologies and Datacomm Systems and
various distributors and VAR's.
In general, the Company's resale agreements with its channel partners
and other resellers (i) have terms ranging from one to five years, subject to
renewal, (ii) do not restrict the sale of products that compete with those of
the Company, (iii) provide for discounts based on expected or actual volumes of
products purchased or resold by the channel partner in a given period, (iv) do
not require minimum purchases, (v) provide for worldwide distribution rights,
(vi) prohibit product distribution by the Company through certain categories of
third parties under certain conditions, (vii) can be terminated by the reseller,
under certain conditions, with limited notice and with little or no penalty, and
(viii) provide manufacturing rights and access to source code upon the
occurrence of specified conditions or defaults.
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. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations-Risk
Factors-Dependence on Channel Partners and Other Resellers" and "Intense
Competition."
INTERNATIONAL SALES
Sales to customers outside of the United States accounted for
approximately $2.4 million, $1.7 million and $4.5 million, or 13.2%, 6.9% and
19.1% of the Company's net revenues in 1999, 1998 and 1997, respectively. The
Company targets international sales on an opportunistic basis and has
historically sold products internationally through partners and resellers. The
Company will continue to work with select partners and resellers to generate
sales in the European and Asian markets. At this time, international sales are
expected to continue to represent a small portion of the Company's sales.
The Company does not have any dedicated international sales offices,
however, the Company sells its products through partners and resellers located
in Europe including Germany, France, UK, and Ireland, and in the Pacific Rim.
Certain business risks are inherent in international transactions. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations-Risk Factors-Dependence on and Risks Associated with International
Sales."
CUSTOMER SERVICE
The Company installs, maintains and supports products in the United
States and in selected International locations with the Company's service and
support personnel and through contracted service providers. The Company's
resellers generally provide installation, maintenance and support services to
their customers, with the Company providing backup support. Sync employs systems
engineers to deliver network consulting services and assist End Users with
pre-sales and post-sales support. As a result, the Company believes that these
systems engineers are able to provide valuable input to the product development
process based on their experience in the field. The Company also supports
customers and
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sales personnel by providing remote telephone through its technical
assistance centers in Irvine, California and Norton, Massachusetts. Through a
digital dial-up network connection or a modem connection to the customer's
system the Company's representatives remotely analyze and correct software,
installation and configuration problems. The Company also offers on-site
installation, technical assistance, consulting and repair services for fixed
fees. The Company's customers may select among various levels of maintenance
options. In certain cases the Company subcontracts with one of its
third-party service providers for the provision of onsite installation and
maintenance services. Sync provides its direct end user customers with a
twelve to sixty month warranty, which commences on product shipment.
RESEARCH AND DEVELOPMENT
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 Company intends to continue to make substantial
investments in product and technology development. The Company monitors changing
customer needs and intends to support industry standards and migrate to new
wide-area networking protocols.
The Company's research and development expenditures aggregated $5.5
million, $7.4 million and $7.2 million in 1999, 1998 and 1997, respectively. At
December 31, 1999, 41 full-time employees were engaged in research and product
development. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations-Risk Factors-Dependence on Key Personnel" and "Results
of Operations."
The Company is focusing its new product development efforts on creating
new product capabilities. During 1999, the Company released its 4300 and 3700
families of integrated frame relay access products, which combine the feature
and functions of its frame relay access products, circuit management and digital
transmission products with alternative ISDN and Async PPP backup capabilities
into one combined solution. The Company believes this product provides a
cost-effective solution that enhances high availability through alternative
bandwidth functionality. Going forward, Sync plans to continue to leverage its
technology strengths through the development of products that support higher
speeds and increase its capabilities in supporting Internet Protocol based
applications. The Company expects that the first of these new products will
begin to become available to the general market during mid-2000. However, no
assurances can be given that the Company will be able to introduce any or all of
these products on a timely basis, if at all. Also, 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, including new PSVN services,
or product announcements by competitors. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations"-Risk Factors-"Rapid
Technological Change and New Products" and "Product Errors."
MANUFACTURING
Sync's operational strategy continues to emphasize outsourcing of
board-level manufacturing to reduce costs and to provide flexibility in meeting
market demand. The Company's manufacturing operations consist primarily of
materials planning and procurement, light assembly, system integration, testing
and quality assurance. The Company designs substantially all of the hardware
subassemblies for its products and has entered into arrangements with contract
manufacturers to outsource substantial portions of its subassembly procurement,
assembly and system test 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 identifies a replacement manufacturer. Such an
event could have a material adverse
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effect on the Company's business, operating results and financial condition.
The Company uses a rolling three-month forecast based on anticipated
product orders to determine its general materials and manufacturing staffing
requirements. Lead times for materials and components ordered by the Company
vary significantly, and depend on factors such as the specific supplier,
contract terms and demand for a component at a given time. Currently, the
Company acquires materials and completes certain standard subassemblies based on
the Company's forecast. Upon receipt of firm orders from customers, the Company
assembles fully-configured systems and subjects them to a number of tests before
shipment. The Company's manufacturing procedures are designed to assure rapid
response to customer orders, but may in certain instances create a risk of
excess or inadequate inventory if orders do not match forecasts. 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. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations-Risk Factors-Dependence on Contract Manufacturers," and "Dependence
on Suppliers."
Although the Company generally uses standard parts and components for
its products, certain key components are currently purchased only from single or
limited sources. At present, single-sourced components include programmable
integrated circuits, selected other integrated circuits and cables,
custom-molded plastics and custom-tooled sheet metal and limited-sourced
components, including flash memories, dynamic random access memory (DRAM),
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 directly buys 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 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. 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 receive 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.
The Company's has obtained ISO 9001 certification for all of its
facilities. The Company's inability to maintain certification of all of its
facilities could have a material adverse effect on the Company's business,
operating results and financial condition.
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
Systems, Inc. ("Cisco") and Nortel, FRAD providers such as Hypercom Network
Systems ("Hypercom"), Motorola Information Systems Group ("Motorola ISG"), and
Cabletron Systems, Inc. ("Cabletron"), and circuit management and digital
transmission providers such as Visual Networks, Inc. ("Visual Networks"),
NetScout, Digital Link Corporation ("Digital Link"), Racal Datacom, Inc., AT&T
Paradyne ("Paradyne") and Adtran, Inc. ("Adtran"), among others. Potential
competitors include other internetworking and WAN access and transmission
companies, frame relay switch providers, the Company's channel partners. Certain
of these companies have 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
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
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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. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations-Risk Factors-Intense Competition."
Sync believes that the principal competitive factors in its market are
expertise and familiarity with SNA networks and protocols, expertise and
knowledge with high capacity mission-critical network issues and solutions,
product performance, features, functionality and reliability, price, overall
cost of ownership, timeliness of new product introductions, adoption of emerging
industry standards, service, support, size and installed base. The Company
believes that it generally is competitive with respect to most of these factors.
However, there can be no assurance that the Company will be able to compete
successfully in the future.
PROPRIETARY RIGHTS
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. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations-Risk Factors-Dependence on Proprietary Technology."
EMPLOYEES
As of December 31, 1999, the Company employed 103 persons, including 41
in engineering, 21 in sales and marketing, 29 in operations and 12 in finance
and administration. There can be no assurance that the Company will be
successful in retaining its key employees. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations-Results of Operations"
and "Risk Factors-Dependence on Key Personnel."
ITEM 2. PROPERTIES
The Company leases approximately 24,000 square feet of space for the
Company's headquarters facility in Irvine, California. The current lease on the
Irvine facility expires in August 2004. In addition, the Company's Tylink
operation leases an industrial building in Norton, Massachusetts. This building
lease expires at the end of July 2002. The Company also has sales and support
offices in 8 other states.
ITEM 3. LEGAL PROCEEDINGS
On November 5, 1997, an action entitled Dalarne Partners, Ltd. Vs
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 Division of California, Southern
Division.
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The action purported 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 asserted claims for violation of
the Securities Exchange Act of 1934. On January 28, 2000 the court dismissed
the complaint with prejudice. Plaintiffs have appealed the dismissal. There
is no date scheduled for the hearing on the appeal
There are no other material legal proceedings to which the Company is a
party or to which any of its properties are subject. No material legal
proceedings were terminated in the year ended December 31, 1999.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
10
<PAGE>
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER
MATTERS
The Company's common stock is listed on the Nasdaq Stock Market and
trades under the symbol SYNX. The following table presents the high and low
closing sale prices for the Company's common stock for the periods indicated.
All sales prices have been adjusted to reflect the Company's one for five
reverse stock split effected in June 1999.
<TABLE>
<CAPTION>
HIGH LOW
----- -----
<S> <C> <C>
1999
Q1.............................................. $6.56 $2.97
Q2.............................................. 3.59 1.87
Q3.............................................. 2.75 1.94
Q4.............................................. 3.25 2.19
1998
Q1.............................................. 19.38 11.71
Q2.............................................. 20.31 10.44
Q3.............................................. 19.38 6.88
Q4.............................................. 7.81 3.56
</TABLE>
The Company had 218 stockholders of record and 2,776 beneficial
shareholders as of March 6, 2000.
The Company has never paid cash dividends on its capital stock and does
not intend to pay cash dividends on its capital stock in the foreseeable future.
The Company's bank line of credit prohibits the Company from paying cash
dividends without the bank's prior written consent. Any future determination to
pay cash dividends will be at the discretion of the Board of Directors and will
be dependent upon the Company's financial condition, results of operations,
capital requirements and such other factors as the Board of Directors deems
relevant.
11
<PAGE>
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
The following selected financial data has been derived from, and are
qualified by reference to, the audited financial statements of the Company and
reflects the merger with Tylink in August 1996, which was accounted for using
the pooling-of-interests method. The data should be read in conjunction with the
financial statements and notes thereto and Management's Discussion and Analysis
of Financial Condition and Results of Operations included elsewhere in this
Report.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
-------------------------------------------------------------
1999 1998 1997 1996 1995
------- ------- ------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net revenues........................................ $ 18,152 $ 24,702 $ 23,256 $36,346 $34,933
Cost of sales....................................... 9,905 15,850 14,724 19,995 17,584
-------- --------- -------- ------- -------
Gross profit........................................ 8,247 8,852 8,532 16,351 17,349
Operating expenses:
Research and development......................... 5,503 7,420 7,195 7,687 5,636
Selling and marketing............................ 5,136 11,851 14,318 14,484 11,248
General and administrative....................... 2,284 3,048 3,741 5,795 2,871
Non-recurring charges............................ - 2,852 1,241 - -
-------- --------- -------- ------- -------
Total operating expenses................... 12,923 25,171 26,495 27,966 19,755
-------- --------- -------- ------- -------
Operating loss...................................... (4,676) (16,319) (17,963) (11,615) (2,406)
Interest income, net................................ 408 875 1,455 2,184 461
-------- --------- -------- ------- -------
Loss before income taxes............................ (4,268) (15,444) (16,508) (9,431) (1,945)
Provision for income taxes.......................... 6 2 - 2 45
-------- --------- -------- ------- -------
Net loss $ (4,274) $ (15,446) $(16,508) $(9,433) $(1,990)
======== ========= ======== ======= =======
Basic and diluted net loss per share................ $ (1.22) $ (4.44) $ (4.81) $ (3.04) $ (2.31)
======== ========= ======== ======= =======
Shares used in computing net loss per share
(1).............................................. 3,493 3,479 3,434 3,258 1,364
======== ========= ======== ======= =======
</TABLE>
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
------------------------------------------------------------
1999 1998 1997 1996 1995
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA: (IN THOUSANDS)
Cash and cash equivalents..................... $ 8,632 $14,135 $21,734 $35,874 $50,633
Working capital............................... 11,611 14,337 28,718 44,336 58,260
Total assets.................................. 19,197 26,791 38,495 55,692 66,672
Capitalized lease obligations, less current
maturities................................. 7 60 111 146 398
Mandatorily redeemable preferred stock........ - - - - 5,591
Total stockholders' equity.................... 13,291 17,571 32,818 48,803 54,862
</TABLE>
Certain prior year amounts have been reclassified to conform with the
current year presentation.
- --------------------------
(1) See Note 1 of Notes to Consolidated Financial Statements for an
explanation of the determination of the number of shares used to
compute basic and diluted net loss per share.
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
Sync develops and sells frame relay access devices (FRADs), circuit
management probe products, digital transmission devices and supporting
software. The Company follows a sales strategy relying primarily on a direct
sales force and leveraging resellers, distributors, and carriers as delivery
channels for its products. Current partners include AT&T, MCI, Electronic
Data Systems, Unisys and Diebold.
In 1998 and 1997, the Company implemented various expense reduction
programs with the goal of enabling the Company to achieve profitability at
lower revenue levels. However, there can be no assurance that its efforts to
implement expense reductions will enable it to become profitable at lower
revenue levels, if at all. Also, there can be no assurance that the Company'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.
RISK FACTORS
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 herein, the following discussion under
"Results of Operations," "Inflation," "Year 2000 Compliance" 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, $4.7 million in 1999, $16.3 million in
1998 and $18.0 million in 1997. As of December 31, 1999, the Company had an
accumulated deficit of approximately $58.7 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 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 the Company'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; 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 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, if channel partners and other
resellers account for a large percentage 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 to 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, delays between initial orders and network-wide deployment. There can
be no assurance that average sales cycles will not increase in future periods.
During the past year, the Company has shifted its efforts from a focus utilizing
channel partners to one focused more on a direct sales model while utilizing
channel partners for strategic opportunities and fulfillment. Accordingly, the
Company's revenues in any period are highly dependent upon the sales efforts and
success of the Company's direct sales force and those channel partners upon
which it relies. There can be no assurance
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<PAGE>
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 solutions or that the Company's channel partners and
other resellers will continue to offer the Company's products. In addition,
the Company has shifted its focus from large corporate Fortune 100
enterprises to the middle market enterprise; those companies with 50 to 500
remote locations. There can be no assurance that the middle market enterprise
prospect customers will select the Company's products as compared to
alternative product offerings provided by other vendors.Significant portions
of the Company's expenses are relatively fixed. 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 FOR FRAME RELAY FOR MISSION-CRITICAL APPLICATIONS
During 1999, 1998 and 1997, sales of frame relay access products,
which enable multiprotocol (IP, IPX and SNA) internet-working over frame
relay, represented approximately 37.7%, 49.2% and 43.1%, respectively, of the
Company's net revenues. The market for SNA-over-frame relay products is
maturing. 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 rather than remaining on leased line networks or selecting newer and/or
alternative technologies. 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. The Company's
frame relay access products are targeted at the large installed base of IBM
customers utilizing SNA networks. IBM has sold, in the past, the Company's
FrameNode-Registered Trademark- product family under the name IBM Nways 2218.
The agreement between IBM and the Company expired in March 1999. Sales to IBM
accounted for 0.8%, 14.1% and 16.5% of the Company's net revenues in 1999,
1998 and 1997, respectively. On August 31, 1999, IBM announced its intention
to discontinue support for many of its wide area network products and in lieu
of such support entered into an arrangement with Cisco Systems to transition
its customers and prospects towards solutions provided by Cisco. The Company
has relied on IBM products, in certain circumstances, to provide support for
Sync products at the customer's data center. Due to the IBM announcement, the
Company will need to enhance its product capability to include
interoperability with products provided by vendors other than IBM. There can
be no assurance that IBM will continue to support frame relay, that IBM will
not develop or promote SNA-over-frame relay products competitive with the
Company's products, that the IBM/ Cisco relationship will not adversely
impact the Company's ability to sell its products, or that the Company will
be able to sufficiently provide for interoperability between its products and
products provided by vendors other that IBM. Any of these events 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 related services
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, 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 certain of its current and potential competitors. The
14
<PAGE>
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 account, and are
expected to continue to account, for a relatively large percentage of the
Company's net revenues, including most of its sales outside of the United
States. Sales through channel partners and other resellers accounted for
47.1%, 62.5% and 67.0% of net revenues of the Company in 1999, 1998 and 1997,
respectively. Current partners include AT&T, MCI, Electronic Data Systems,
Unisys and Diebold. The Company has also sold its products through OEM
relationships with IBM among others. The agreement between IBM and Sync
expired in March 1999. Sales to IBM accounted for 0.8%, 14.1% and 16.5% of
the Company's net revenues for in 1999, 1998, and 1997, 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. 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. In addition,
these agreements generally provide for discounts based on expected or actual
volumes of products purchased or resold by the reseller in a given period, do
not require minimum purchases, prohibit distribution of certain products by
the Company through certain categories of third parties under certain
conditions and provide for manufacturing rights and access to source code
upon the occurrence of specified conditions or defaults.
Many of the Company's channel partners and resellers offer
alternative solutions, designed by themselves or third parties and have
pre-existing relationships with current or potential competitors of the
Company. Certain of the Company's former channel partners have developed
competitive products and terminated their relationships with the Company, and
such developments could occur in the future.
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 relatively
large portion of the Company's net revenues, gross profit as a percentage of
net revenues may decline.
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 the Company'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 and other resellers could have
a material adverse effect on the Company's business, operating results and
financial condition.
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
15
<PAGE>
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
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. Such errors have occurred in the
past, and there can be no assurance that, despite testing by the Company and
customers, errors will not be found 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 the
Company's end-user customers, 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 Nortel; FRAD providers, such as Hypercom, Motorola and Cabletron;
and circuit management and digital transmission providers such as Visual
Networks, Netscout, Digital Link, Racal, Paradyne and Adtran, among others.
Potential competitors include other internetworking and WAN access and
transmission companies, frame relay switch providers, and the Company's other
channel partners. 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 mid-sized and 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 former
channel partners have 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 which could result in significant price competition, reduced
profit margins or loss of market share and 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 CONTRACT MANUFACTURERS
The Company's manufacturing operations consist primarily of
materials planning and procurement, light assembly, system integration,
testing and quality assurance. The Company has entered into arrangements with
contract manufacturers to outsource substantial portions of its board level
procurement, assembly and system test 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
16
<PAGE>
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 the Company's ability
to fulfill orders while the Company identifies 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. 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,
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 of
a supplier, increase in lead times, cost increases, component supply
interruption, 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 $2.4 million, $1.7 million and $4.5 million, or 13.2%, 6.9% and
19.1% of the Company's net revenues in 1999, 1998 and 1997 respectively. The
Company targets international sales on an opportunistic basis and has
historically sold products internationally through partners and resellers.
The Company will continue to work with select partners and resellers to
generate sales in the European and Asian markets. At this time, international
sales are expected to continue to represent a small portion of the Company's
sales.
Failure of the Company's international partners and 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, including
currency valuation. 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 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, 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.
17
<PAGE>
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 services increase 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 the various European Community telecommunications authorities.
In addition, carriers require that equipment connected to their networks
comply with their own standards. 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 personnel. 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.
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 1999, the Company has undergone significant personnel turnover in
research and development, sales, and other functional areas and the Company
experienced significant turnover in the composition of its executive
officers. Such turnover has affected the Company's ability to successfully
develop new products and generate additional business. Two of the current
three executive officers have been officers of the Company for less than a
year. The loss of the services of any of the Company's 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.
18
<PAGE>
VOLATILITY OF STOCK PRICE
Factors such as announcements of technological innovations or the
introduction of new products by the Company or 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.
NASDAQ STOCK LISTING
The Company's common stock is listed and traded on The Nasdaq Stock
Market. On January 4, 1999, the Company received a letter from Nasdaq
notifying the Company that it has failed to maintain a closing bid price of
greater than $1.00 in accordance with the Nasdaq listing requirements. In
order to comply with the Nasdaq listing requirements, on June 28, 1999 the
Company implemented a 1 for 5 reverse stock split that was approved by the
Company's stockholders at the Annual Meeting on June 11, 1999. As a result of
the reverse stock split, the Company has maintained its stock price above the
$1 per share minimum level, and, accordingly, was informed by Nasdaq that it
had met the requirements for continued listing. However, there can be no
assurance that the Company will meet the minimum closing bid price or any
other Nasdaq listing requirements on an ongoing basis.
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 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 defined 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.
RESULTS OF OPERATIONS
COMPARISON OF 1999 AND 1998 RESULTS
NET REVENUES. The Company derives its revenues primarily from sales
of advanced wide-area networking products, which are recognized upon
shipment. 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. Service revenues for training, installation and
consulting services are recognized when the service is performed.
Net revenues in 1999 were $18.2 million, a decrease from net
revenues of $24.7 million in 1998. Net
19
<PAGE>
revenues by product group for the years ended December 31, 1999 and 1998 were
as follows ($ in thousands):
<TABLE>
<CAPTION>
1999 % 1998 %
------- ------ ------- ------
<S> <C> <C> <C> <C>
Frame relay access products.................. $6,837 37.7% $12,145 49.2%
Circuit management products.................. 3,372 18.6 5,344 21.6
Transmission products........................ 1,187 6.5 2,041 8.3
Service and other............................ 6,756 37.2 5,172 20.9
------- ------ ------- ------
$18,152 100.0% $24,702 100.0%
------- ------ ------- ------
------- ------ ------- ------
</TABLE>
The decrease in product revenues was primarily due to completion of
several large projects in 1998. The increase in service and other revenue
represents higher service revenues resulting from the emphasis in selling
support and consulting services during 1999.
The percentage of net revenues represented by sales through channel
partners and other resellers declined to 47.1% in 1999 from 62.5% in 1998.
Sales to IBM accounted for 0.8% and 14.1% of the Company's net revenues in
1999 and 1998. The agreement between IBM and Sync expired in March 1999. The
Company expects that average selling prices may continue to decline and that
sales through channel partners and other resellers may continue to account
for a relatively large portion of net revenues; however, the mix of sales
among channel partners and other resellers may change from period to period.
International sales accounted for 13.2% of net revenues in 1999, as
compared to 6.9% of net revenues in 1998. The increase was primarily due to
shipments for international locations of a U.S. based customer
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 decreased to $8.2 million for 1999 compared to $8.9
million in 1998, primarily as a result of the lower revenue levels. Gross
profit as a percentage of net revenues increased to 45.4% in 1999 from 35.8%
in 1998, due primarily to lower manufacturing overhead costs and an increase
in higher margin service revenues.
OPERATING EXPENSES. Research and development expenses primarily
consist of compensation paid to personnel, including consultants, engaged in
research and development activities, amounts paid for outside development
services, costs of materials utilized in the development of hardware
products, including product prototypes, and the depreciation and amortization
of equipment and tools utilized in the research and development process.
Research and development expenses decreased to $5.5 million in 1999, from
$7.4 million in 1998 due to the Company's cost reduction efforts and
unstaffed development positions resulting from employee turnover.
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 $5.1 million in 1999
from $11.9 million in 1998 due primarily to the Company's cost reduction
efforts and unstaffed sales positions resulting from employee turnover.
General and administrative expenses consist primarily of
compensation paid to corporate and administrative personnel, payments to
consultants and professional service providers, and public company related
costs. General and administrative expenses decreased to $2.3 million in 1999
from $3.0 million in 1998. The decrease in general and administrative
expenses was primarily due to the Company's cost reduction efforts.
20
<PAGE>
During the fourth quarter of fiscal 1998, the Company implemented
additional expense reduction programs to reduce its overall cost structure
and, as a result, recognized a $2.9 million non-recurring charge consisting
of severance and related headcount reduction costs, idle and excess facility
charges and write-offs of assets no longer in use due to the reduction
efforts. The activity of the Company's cost reduction efforts are summarized
as follows (in thousands):
<TABLE>
<CAPTION>
ACCRUAL ACCRUAL
DESCRIPTION AT 12/31/98 ACTIVITY AT 12/31/99
----------- ----------- -------- -----------
<S> <C> <C> <C>
Severance and related expenses....... $ 854 $(854) $ -
Idle and excess facility charges
and write-off of assets............ 1,110 (1,110) -
Other non-recurring charges.......... 12 (12) -
-------- ------- -------
Total................................ $ 1,976 $(1,976) $ -
-------- ------- -------
-------- ------- -------
</TABLE>
The Company completed substantially all of its cost reduction
measures during fiscal 1999. The Company will continue to evaluate and may
adjust its organization and cost structure in the future.
Net interest income was $0.4 million in 1999, as compared to $0.9
million in 1998. The decrease in interest income was primarily due to the
Company's lower cash balances resulting from the use of cash to fund the
Company's operating activities.
INCOME TAXES. The provision for income tax in 1999 and 1998
represented minimum state taxes.
COMPARISON OF 1998 AND 1997 RESULTS
NET REVENUES. Net revenues in 1998 were $24.7 million, an increase
from net revenues of $23.3 million in 1997. Net revenues by product group for
the years ended December 31, 1998 and 1997 were as follows ($ in thousands):
<TABLE>
<CAPTION>
1998 % 1997 %
------- ------ ------- ------
<S> <C> <C> <C> <C>
Frame relay access products............ $12,145 49.2% $10,011 43.0%
Circuit management products............ 5,344 21.6 4,847 20.8
Transmission products.................. 2,041 8.3 4,394 18.9
Service and other...................... 5,172 20.9 4,004 17.3
------- ------ ------- ------
$24,702 100.0% $23,256 100.0%
------- ------ ------- ------
------- ------ ------- ------
</TABLE>
The increase in frame relay access and circuit management and
service revenues, was due to several large orders placed and fulfilled during
1998. The reduction in transmission products reflects a reduction in sales of
transmission products to the Pacific Rim caused by the continued currency and
financial instability in the region.
The percentage of net revenues represented by sales through channel
partners and other resellers declined to 62.5% in 1998 from 67.0% in 1997.
Sales to IBM accounted for 14.1% and 16.5% of the Company's net revenues in
1998 and 1997, respectively.
International sales accounted for 6.9% of net revenues in 1998, as
compared to 19.1% of net revenues in 1997 primarily due to a decrease in
sales to the Pacific Rim due to economic conditions in that region.
GROSS PROFIT. Gross profit increased slightly to $8.9 million for
1998 compared to $8.5 million in 1997. Gross profit as a percentage of net
revenues decreased to 35.8% for the year ended December 31, 1998 from 36.7%
for the year ended December 31, 1997, due primarily to increased discounts to
IBM in 1998, as well as a decrease in average selling prices.
OPERATING EXPENSES. Research and development expenses increased
slightly to $7.4 million for the
21
<PAGE>
year ended December 31, 1998, from $7.2 million for the year ended December
31, 1997.
Selling and marketing expenses decreased to $11.9 million for the
year ended December 31, 1998 from $14.3 million for the year ended December
31, 1997. The decreased expenses resulted primarily from sales and marketing
consultant and employee headcount reductions.
General and administrative expenses decreased to $3.0 million for
the year ended December 31, 1998, as compared to $3.7 million for the year
ended December 31, 1997. The decrease in general and administrative expenses
was primarily due to the Company's expense reduction programs.
In the first and fourth quarters of fiscal 1997, the Company
implemented various expense reduction programs to improve its results of
operations. In connection with these programs, the Company recorded a
non-recurring charge of $1.2 million, consisting of severance and related
headcount reduction costs and lease termination costs related to redundant
sales office facilities.
The non-recurring charges taken in 1998 and 1997 were as follows (in
thousands):
<TABLE>
<CAPTION>
ACCRUAL ACCRUAL
DESCRIPTION AT 12/31/97 CHARGE ACTIVITY AT 12/31/98
----------- ----------- ------ -------- -----------
<S> <C> <C> <C> <C>
Severance and related expenses....... $ 354 $ 1,210 $ (710) $ 854
Idle and excess facility charges
and write-off of assets............ 9 1,547 (446) 1,110
Other non-recurring charges.......... 9 95 (92) 12
----- ------- ------- -------
Total................................ $ 372 $ 2,852 $(1,248) $ 1,976
----- ------- ------- -------
----- ------- ------- -------
</TABLE>
In 1998, the Company completed its 1997 expense reduction program
activities.
Net interest income in 1998 decreased to $0.9 million from $1.5 million
in 1997 primarily due to lower cash balances.
INCOME TAXES. The provision for income tax in 1998 represented minimum
state taxes. There were no provisions for income taxes in 1997.
INFLATION
The effects of inflation have not historically had, and are not
expected to have, a material effect on the Company's operating results or
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. To date, the Company has tested its products and internal systems
for Year 2000 compliance and has verified that its significant vendors,
customers and service provides or any other third party upon which it
significantly relies have taken prudent measures to mitigate the risk of the
Year 2000. The Company has not experienced or been informed of any significant
Year 2000 issues that may directly or indirectly affect its business. The
Company will continue to monitor and evaluate the impact of the Year 2000 upon
its overall business as latent Year 2000 related issues may arise in the future.
To date, the Company has not incurred substantial costs to address the
Year 2000 issue and is unable to estimate the additional cost, if any, that may
arise from Year 2000 related issues identified in the future.
Despite the Company's efforts to address the Year 2000 impact on its
products, internal systems and business operations, latent Year 2000 related
issues 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.
22
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
As of December 31, 1999, the Company's principal sources of liquidity
consisted of $8.6 million of cash and cash equivalents. The Company also has
available a $2 million secured bank line of credit which will expire in April
2000. There were no borrowings outstanding as of December 31, 1999.
During 1999, cash used in operating activities was $4.8 million,
compared to $6.5 million for fiscal 1998. Use of cash during 1999 resulted
primarily from the Company's net loss of $4.3 and the payment of costs
associated with the Company's restructuring plan. Capital expenditures during
fiscal 1999 were $0.6 million, compared to $1.2 million for 1998. At December
31, 1999, the Company had no material commitments for capital expenditures.
As of December 31, 1999, the Company's net working capital was $11.6
million, of which $8.6 million was invested in cash and cash equivalents, $3.2
million was invested in accounts receivable, and $5.1 million was invested in
inventory. The Company believes that its available cash and cash equivalents
will be sufficient to meet its working capital requirements at least through
2000.
23
<PAGE>
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
RISKS ASSOCIATED WITH FOREIGN EXCHANGE
In 1999, approximately 13.2% of the Company's net revenues were derived
from sales to international customers, primarily in the Pacific Rim and Europe.
As a result, the Company is exposed to market risk from changes in foreign
exchange rates and international economic conditions, which could affect its
results of operations and financial condition. In order to reduce the risk from
fluctuation in foreign exchange rates, the Company's product sales are
denominated in U.S. dollars. The Company has not entered into any currency
hedging activities.
INTEREST RATE RISKS
The Company invests its excess cash in high quality government and
corporate debt instruments. However, the Company may be exposed to fluctuation
in rates on these investments. Increases or decreases in interest rates
generally translate into increases or decreases in the fair value of these
investments. Such changes to these investments have historically not been
material due to the short-term nature of the Company's investment. In addition,
the credit worthiness of the issuer, the relative values of alternative
investments, the liquidity of the instruments and other general market
conditions may affect the fair value of interest rate sensitive instruments. In
order to reduce the risk from fluctuation in rates, the Company invests in money
market funds and short-term debt instruments of U.S. corporations with strong
credit ratings and the federal government with contractual maturities of less
than six months. At December 31, 1999, investments were as follows
($ in millions):
<TABLE>
<CAPTION>
AVERAGE
AVERAGE INTEREST FAIR
BALANCE MATURITY RATE VALUE
------- -------- -------- ------
<S> <C> <C> <C> <C>
Short-term debt instruments and money market funds $8.6 2 months 5% $8.6
</TABLE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See Item 14(a) for an index to the financial statements and
supplementary financial information that are attached hereto.
24
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholders
Sync Research, Inc.
We have audited the accompanying consolidated balance sheets of Sync
Research, Inc. as of December 31, 1999 and 1998, and the related consolidated
statements of operations, stockholders' equity, and cash flows for each of the
three years in the period ended December 31, 1999. Our audits also included the
financial statement schedule listed in the index at item 14(a). These financial
statements and schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
schedule based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Sync Research, Inc. at December 31, 1999 and 1998, and the consolidated results
of its operations and its cash flows for each of the three years in the period
ended December 31, 1999, in conformity with accounting principles generally
accepted in the United States. Also, in our opinion, the related financial
statement schedule, when considered in relation to the basic financial
statements taken as a whole, presents fairly in all material respects the
information set forth therein.
Ernst & Young LLP
Orange County, California
January 28, 2000
25
<PAGE>
SYNC RESEARCH, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
ASSETS
DECEMBER 31
------------------
1999 1998
------ ------
<S> <C> <C>
Current assets:
Cash and cash equivalents............................................................. $8,632 $14,135
Accounts and other receivables, less allowance for doubtful accounts of $273 in 1999
and $214 in 1998................................................................... 3,173 2,443
Inventories........................................................................... 5,140 6,111
Prepaid expenses and other current assets............................................. 565 808
------- -------
Total current assets............................................................... 17,510 23,497
Furniture, fixtures and equipment, net................................................... 1,632 3,247
Other assets............................................................................. 55 47
------- --------
Total assets............................................................................. $19,197 $26,791
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable...................................................................... $1,769 $3,138
Accrued compensation and related costs................................................ 736 956
Accrued severance and restructuring costs............................................. - 1,976
Deferred revenue and customer deposits................................................ 3,048 2,063
Other accrued liabilities............................................................. 297 975
Current maturities of capitalized lease obligations................................... 49 52
------ ------
Total current liabilities.......................................................... 5,899 9,160
Capitalized lease obligations, less current maturities................................... 7 60
Commitments and contingencies (Note 7)
Stockholders' equity:
Preferred stock, $.001 par value:
Authorized shares-2,000
Issued and outstanding shares-none................................................. - -
Common stock, $.001 par value:
Authorized shares-50,000
Issued and outstanding shares 3,505 in 1999 and 3,492 in 1998...................... 4 3
Additional paid-in capital............................................................ 71,958 71,972
Deferred compensation................................................................. - (7)
Accumulated deficit................................................................... (58,671) (54,397)
------- -------
Total stockholders' equity......................................................... 13,291 17,571
------- -------
Total liabilities and stockholders' equity............................................... $19,197 $26,791
======= =======
</TABLE>
See accompanying notes.
26
<PAGE>
SYNC RESEARCH, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
------------------------------------
1999 1998 1997
------- -------- --------
<S> <C> <C> <C>
Net revenues.......................................................................... $18,152 $ 24,702 $ 23,256
Cost of sales......................................................................... 9,905 15,850 14,724
------- -------- --------
Gross profit.......................................................................... 8,247 8,852 8,532
Operating expenses:
Research and development........................................................... 5,503 7,420 7,195
Selling and marketing.............................................................. 5,136 11,851 14,318
General and administrative......................................................... 2,284 3,048 3,741
Non-recurring charges.............................................................. - 2,852 1,241
------- -------- --------
Total operating expenses........................................................ 12,923 25,171 26,495
------- -------- --------
Operating loss........................................................................ (4,676) (16,319) (17,963)
Interest income, net.................................................................. 408 875 1,455
------- -------- --------
Loss before income taxes.............................................................. (4,268) (15,444) (16,508)
Provision for income taxes............................................................ 6 2 -
------- -------- --------
Net loss.............................................................................. $(4,274) $(15,446) $(16,508)
======= ======== ========
Basic and diluted net loss per share.................................................. $ (1.22) $(4.44) $(4.81)
======= ======== ========
Shares used in computing net loss per share........................................... 3,493 3,479 3,434
======= ======== ========
</TABLE>
See accompanying notes.
27
<PAGE>
SYNC RESEARCH, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL
------------ DEFERRED PAID-IN ACCUMULATED
SHARES AMOUNT COMPENSATION CAPITAL DEFICIT TOTAL
------ ------ ------------ ------- ------- -----
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1996.................. 3,389 $3 $(156) $71,399 $(22,443) $48,803
Exercise of warrants and common stock options. 68 1 - 187 - 188
Repurchase of restricted stock................ (7) - - (7) - (7)
Issuance of stock under employee stock
purchase plan.............................. 8 - - 263 - 263
Amortization of deferred compensation......... - - 79 - - 79
Cancellation of options granted to employees.. - (1) 43 (42) - -
Net loss...................................... - - - - (16,508) (16,508)
------- ------- ------- -------- -------- --------
Balance at December 31, 1997.................. 3,458 3 (34) 71,800 (38,951) 32,818
Exercise of warrants and common stock options. 27 - - 56 - 56
Repurchase of common stock.................... (4) - - (17) - (17)
Issuance of stock under employee stock
purchase plan.............................. 11 - - 133 - 133
Amortization of deferred compensation......... - - 27 - - 27
Net loss...................................... - - - - (15,446) (15,446)
------- ------- ------- -------- -------- --------
Balance at December 31, 1998.................. 3,492 3 (7) 71,972 (54,397) 17,571
Exercise of warrants and common stock options. 62 1 - 75 - 76
Repurchase of common stock.................... (64) - - (136) - (136)
Issuance of stock under employee stock
purchase plan.............................. 15 - - 47 - 47
Amortization of deferred compensation......... - - 7 - - 7
Net loss...................................... - - - - (4,274) (4,274)
------- ------- ------- -------- -------- --------
Balance at December 31, 1999.................. 3,505 $4 $ - $71,958 $(58,671) $13,291
======= ======= ======= ======== ======== ========
</TABLE>
See accompanying notes.
28
<PAGE>
SYNC RESEARCH, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
--------------------------------------
1999 1998 1997
-------- --------- ---------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net loss...................................................................... $ (4,274) $(15,446) $(16,508)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization.............................................. 1,309 1,798 1,718
Asset write-offs in connection with non-recurring charge................... 902 336 -
Provision for losses on accounts receivable................................ 225 298 223
Deferred compensation expense.............................................. 7 27 79
Changes in operating assets and liabilities:
Accounts and other receivables............................................. (955) 1,916 2,707
Inventories................................................................ 971 1,260 (232)
Prepaid expenses and other current assets.................................. 243 (286) (43)
Accounts payable........................................................... (1,369) 966 (1,812)
Accrued compensation and related costs..................................... (220) 7 (25)
Accrued severance and restructuring........................................ (1,976) 1,604 372
Deferred revenue........................................................... 985 631 1,006
Other accrued liabilities.................................................. (678) 384 73
Other...................................................................... (8) (3) 3
-------- --------- ---------
Net cash used in operating activities......................................... (4,838) (6,508) (12,439)
INVESTING ACTIVITIES
Purchases of furniture, fixtures and equipment............................. (596) (1,214) (1,315)
-------- --------- ---------
Net cash used in investing activities......................................... (596) (1,214) (1,315)
FINANCING ACTIVITIES
Net payments under credit agreements....................................... - - (802)
Payments on capitalized lease obligations.................................. (56) (49) (28)
Repurchase of common stock................................................. (136) (17) (7)
Proceeds from common stock options and warrants exercised.................. 76 56 188
Proceeds from employee stock purchase plan................................. 47 133 263
-------- --------- ---------
Net cash provided by (used in) financing activities........................... (69) 123 (386)
-------- --------- ---------
Net decrease in cash and cash equivalents..................................... (5,503) (7,599) (14,140)
Cash and cash equivalents at beginning of year................................ 14,135 21,734 35,874
-------- --------- ---------
Cash and cash equivalents at end of year...................................... $ 8,632 $ 14,135 $ 21,734
-------- --------- ---------
-------- --------- ---------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Interest paid.............................................................. $ 8 $ 41 $ 30
-------- --------- ---------
-------- --------- ---------
Income taxes paid.......................................................... $ 14 $ 15 $ 11
-------- --------- ---------
-------- --------- ---------
</TABLE>
See accompanying notes.
29
<PAGE>
SYNC RESEARCH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
COMPANY BACKGROUND
Sync Research, Inc. (the "Company") develops, manufactures, markets,
supports and provides wide-area network ("WAN") access and management products
and services designed to economically and reliably support business critical
applications across carrier provided packetized transmission services, such as
frame relay.
BASIS OF PRESENTATION
The accompanying consolidated financial statements include the accounts
of Sync Research, Inc. and its subsidiaries (the Company). All significant
intercompany transactions and balances have been eliminated in consolidation.
RECLASSIFICATIONS AND STOCK SPLIT
Certain prior year amounts have been reclassified to conform with the
current year presentation. The company effected a one for five reverse stock
split in June 1999. All share and per share information in the accompanying
financial statements have been restated to reflect this reverse stock split.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Significant estimates made in preparing the consolidated financial statements
include the allowance for doubtful accounts, certain accrued liabilities,
inventory reserves, and income tax valuation allowances.
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 diversifications and
maturities that maintain safety and liquidity. The Company considers all highly
liquid investments with an original maturity of 90 days or less and money market
funds to be cash equivalents.
INVENTORIES
Inventories are stated at the lower of cost or market. Cost is
determined on the first-in, first-out method. Inventories consisting primarily
of computer hardware and components are as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31
----------------
1999 1998
------ ------
<S> <C> <C>
Raw materials................................... $2,707 $2,983
Work in process................................. 366 752
Finished goods.................................. 2,067 2,376
------ ------
$5,140 $6,111
------ ------
------ ------
</TABLE>
REVENUE RECOGNITION
The Company derives its revenues primarily from sales of wide-area
networking hardware and software products, which are recognized upon shipment.
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 and installation or other assistance are
recognized ratably over the term of the maintenance period, which is typically
12 months or as the work is performed.
30
<PAGE>
SYNC RESEARCH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CAPITALIZED SOFTWARE
Software development costs incurred subsequent to determination of
technical feasibility are capitalized. Based on the Company's product
development process, technological feasibility is established upon completion of
a working model. Costs incurred between completion of the working model and the
point at which the product is ready for initial shipment have historically not
been significant. Amortization begins when products is available for general
release to customers. The Company also capitalizes costs related to the purchase
or license of software developed by third parties which are used in certain of
its products. Such costs are amortized over the applicable license period or
estimated useful life of the product. In connection with its cost reduction
program, the Company wrote off $405,000 of its capitalized purchased software in
1999 as such software products were no longer supported.
FURNITURE, FIXTURES AND EQUIPMENT
Furniture, fixtures and equipment are recorded at cost. Depreciation
and amortization are provided on the straight-line method over the following
estimated useful lives:
<TABLE>
<S> <C>
Equipment acquired under capitalized leases Term of lease (ranging from 3 to 5 years)
Furniture and fixtures 5 to 7 years
Computers, software and equipment 3 to 7 years
Leasehold improvements Term of lease
</TABLE>
LONG-LIVED ASSETS
Long-lived assets and certain identifiable intangibles held and used by
the Company are reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. If required, the recoverability test is performed at the lowest
level practicable based on undiscounted net cash flows.
RESEARCH AND DEVELOPMENT
Research and development costs are expensed as incurred. Continuous
research and development is necessary for the Company to maintain its
competitive position.
WARRANTY
The Company provides a warranty on all products and records a related
provision for estimated warranty costs at the date of sale.
INCOME TAXES
Deferred income tax assets and liabilities are computed for the
difference between the financial statement and tax basis of assets and
liabilities based on enacted tax laws and rates applicable to the period in
which differences are expected to affect taxable income. Valuation allowances
are established, when necessary to reduce deferred tax assets to amounts which
are more likely than not to be realized. The provision for income taxes consists
of the taxes payable and refundable for the period plus or minus the change
during the period in deferred income tax assets and liabilities.
NON-RECURRING CHARGES
In the first and fourth quarters of fiscal 1997, the Company
implemented various expense reduction programs to improve its results of
operations. In connection with these programs, the Company recorded a
non-recurring charge of $1.2 million, consisting of severance and related
headcount reduction costs and lease termination costs related to redundant sales
office facilities.
During the fourth quarter of fiscal 1998, the Company implemented
additional expense reduction programs to reduce its overall cost structure and,
as a result, recognized a $2.9 million non-recurring charge consisting of
severance and related headcount reduction costs, idle and excess facility
charges
31
<PAGE>
SYNC RESEARCH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
and write-offs of assets no longer in use due to the reduction efforts. The
non-recurring charges taken in 1998 and 1997 are summarized as follows (in
thousands):
<TABLE>
<CAPTION>
Accrual at Accrual at Accrual at
Description 12/31/97 Expense Activity 12/31/98 Activity 12/31/99
----------- -------- ------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Severance and related expenses $354 $1,210 $(710) $854 $(854) $ -
Idle and excess facility 9 1,547 (446) 1,110 (1,110) -
chargesand write-off of assets
Other non-recurring charges 9 95 (92) 12 (12) -
---- ------ ------- ------ ------- ------
Total $372 $2,852 $(1,248) $1,976 $(1,976) $ -
---- ------ ------- ------ ------- ------
---- ------ ------- ------ ------- ------
</TABLE>
In 1999, the Company completed its expense reduction program
activities. The Company will continue to evaluate and may adjust its
organization and cost structure.
STOCK-BASED COMPENSATION
The Company has elected to use the intrinsic value method described
in Accounting Principles Board Opinion No. 25, ACCOUNTING FOR STOCK ISSUED TO
EMPLOYEES(APB 25) and related Interpretations in accounting for its employee
stock options.
EARNINGS (LOSS) PER SHARE
Basic and diluted earnings(loss) per share is computed using the
weighted average number of common shares and common share equivalents
outstanding during the year and excludes the anti-dilutive effects of options.
2. FURNITURE, FIXTURES AND EQUIPMENT
Furniture, fixtures and equipment are recorded at cost and consist
of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31
-------------------
1999 1998
------ ------
<S> <C> <C>
Equipment under capital leases.................................. $275 $275
Furniture and fixtures.......................................... 559 848
Computers, software and equipment............................... 7,239 7,462
Leasehold improvements.......................................... 415 1,109
------ ------
8,488 9,694
Accumulated depreciation and amortization....................... (6,856) (6,447)
------ ------
$1,632 $3,247
------ ------
------ ------
</TABLE>
3. CONCENTRATION OF BUSINESS AND CREDIT RISK
The Company operates in a market which is subject to rapid
technological advancement and competition. The introduction of
technologically advanced products by competitorsand new technological
developments could have a substantial impact on the future operations of the
Company.
A substantial portion of the Company's revenues are concentrated
with a few communications, networking, and telecommunications companies and
large enterprise end-user organizations. Sales to six customers represented
49.9% of the Company's total revenues in 1999. There was no single customer
in 1999 that represented more than 10% of the Company's total revenues.
Revenue from two customers represented 18.5% and 14.1% of the Company's total
revenues in 1998. Sales to one customer represented 16.5% of total revenues
in 1997.
Accounts receivable represent the Company's only significant financial
instrument with potential
32
<PAGE>
SYNC RESEARCH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
credit risk. The Company performs periodic credit evaluations of its
customer's financial condition and generally does not require collateral.
Credit losses have been within management's expectations and within amounts
provided through the allowances for doubtful accounts. To date, the Company
has not experienced any material write-offs or collection problems. At
December 31, 1999, five major customers represented 56.1% of total accounts
receivable.
The Company is dependent upon certain suppliers of key components
and contract manufacturers.
Revenues from foreign customers, primarily in Europe and the Pacific
Rim, aggregated $2.4 million or 13.2% and $1.7 million or 6.9%, and $4.5
million or 19.1%, of revenues in 1999, 1998 and 1997, respectively.
4. INCOME TAXES
A reconciliation of the provision for taxes based upon income at the
U.S. federal statutory rate compared to the Company's effective tax rate
follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31
-------------------------------
1999 1998 1997
------- ------- -------
<S> <C> <C> <C>
Statutory federal benefit for income taxes...... $(1,451) $(5,251) $(5,613)
Incentive stock option compensation............. - - (142)
State tax, net of federal benefit............... 1 2 -
Tax effect of losses without current benefit.... 1,421 5,278 5,722
Other, net...................................... 35 (27) 33
------- ------- -------
$ 6 $ 2 $ -
------- ------- -------
------- ------- -------
</TABLE>
Significant components of the provision for income taxes are as follows
(in thousands):
<TABLE>
<CAPTION>
DECEMBER 31
----------------------------
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Current:
Federal......................................... $ - $ - $ -
State........................................... 6 2 -
--- --- ---
Total current...................................... $ 6 $ 2 $ -
--- --- ---
--- --- ---
</TABLE>
The Company has approximately $59 million of federal net operating
loss carryforwards, including acquired net operating losses of an acquired
entity, Tylink Corporation, which will begin to expire in 2006. Approximately
$11 million of this loss carryforward is attributable to deductions from the
exercise of non-statutory stock options. A valuation allowance has been
established for the entire deferred tax asset related to these net operating
losses. When realized, the federal and state tax benefits related to the
reversal of this valuation allowance will be applied to reduce income tax
expense, except for the portion of the net operating losses that relates to
the deductions for the exercise of non-qualified stock options which will be
directly credited to additional paid-in capital.
Deferred income taxes reflect the net tax effects of temporary
differences between the carrying amounts of assets and liabilities for
financial reporting purposes and the amounts used for income tax purposes.
Significant components of the Company's deferred taxes are as follows (in
thousands):
33
<PAGE>
SYNC RESEARCH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
DECEMBER 31
-----------------------
1999 1998
-------- --------
<S> <C> <C>
Deferred tax assets:
Allowance for doubtful accounts.................................... $ 108 $ 92
Depreciation....................................................... 601 425
Warranty reserve................................................... 90 107
Accrued commission................................................. 7 80
Accrued severance and restructuring costs.......................... 7 846
Net operating loss carryforwards................................... 21,427 19,138
Deferred revenue................................................... 1,214 884
Inventory reserves................................................. 308 490
Accrued vacation................................................... 121 232
Other.............................................................. 88 291
-------- --------
Total deferred tax assets................................................ 23,971 22,585
Deferred tax liabilities:
Operating leases................................................... (51) (55)
Other.............................................................. (2) (12)
-------- --------
Total deferred tax liabilities........................................... (53) (67)
-------- --------
Total net deferred tax assets............................................ 23,918 22,518
Valuation allowance for deferred tax assets.............................. (23,918) (22,518)
-------- --------
Net deferred tax assets.................................................. $ - $ -
-------- --------
-------- --------
</TABLE>
The Tax Reform Act of 1986 contains provisions which could
substantially limit the availability of the net operating loss carryforwards
if there is a greater than 50% change in ownership during a three year
period. As a result of the initial public offering and the Merger with Tylink
Corporation, the Company and TyLink experienced an ownership change of more
than 50%, resulting in a limitation on the utilization of their net operating
loss carryforwards. The limitation is based on the value of the companies on
the date that the effective change in ownership occurred. Management cannot
determine whether the limitation on the net operating losses will have a
material adverse effect on the Company's ability to fully utilize its net
operating loss carryforwards in the future. The ultimate realization of the
loss carryforwards is dependent on the future profitability of the Company.
5. EMPLOYEE BENEFIT PLANS
The Company sponsors a plan (the Plan) pursuant to Section 401(k) of
the Internal Revenue Code (the Code), whereby substantially all eligible
employees may contribute a percentage of their compensation, subject to a
maximum allowed under the Code. The Company may contribute to the Plan, as
determined by the Board of Directors. For the years ended December 31, 1999,
1998 and 1997, matching contributions made and expensed by the Company
aggregated $104,000, $149,000 and $164,000, respectively.
The Company sponsors an Employee Stock Purchase Plan (the Purchase
Plan), under which 40,000 shares of Common Stock has been reserved for
issuance. Under the Purchase Plan, the Company's employees meeting certain
eligibility requirements, may elect on a semiannual basis to purchase Common
Stock through payroll deductions, which may not exceed 5% of each employee's
compensation (subject to certain limitations). The stock price is set at the
lower of 85% of the fair market value of the Company's common stock at the
beginning or end of each semiannual offering period.
6. STOCK OPTIONS
The Company has various stock option plans that provide for the
granting of incentive or non-statutory stock options to certain key
employees, non-employee members of the Board of Directors, consultants and
independent contractors. Options are granted at a price equal to 100% of the
fair market value of the Company's common stock at the date of grant. Options
typically vest at a rate of 25% of the shares on the first anniversary of the
vesting commencement date and 1/48th of the shares at the end of
34
<PAGE>
SYNC RESEARCH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
each month and expire not later than 10 years from the date of grant. The
number of shares reserved and available for grant under these plans
aggregated 1,672,816 and 199,539 shares, respectively, at December 31, 1999.
The Company has elected to follow the intrinsic value method
described in APB Opinion No. 25, ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES and
related Interpretations in accounting for its plans. Accordingly, no
compensation expense has been recognized for its stock option awards and its
stock purchase plan because the exercise price of the Company's stock options
equals the market price of the underlying stock on the date of grant.
A summary of the Company's stock option activity, and related
information for the years ended December 31 follows:
<TABLE>
<CAPTION>
1999 1998 1997
------------------------- ------------------------- --------------------------
WEIGHTED-AVERAGE WEIGHTED-AVERAGE WEIGHTED-AVERAGE
OPTIONS EXERCISE PRICE OPTIONS EXERCISE PRICE OPTIONS EXERCISE PRICE
------- -------------- ------- -------------- ------- --------------
<S> <C> <C> <C> <C> <C> <C>
Options outstanding at
beginning of year........ 675,068 $9.05 843,450 $17.60 671,808 $53.40
Granted..................... 916,300 2.59 635,815 8.65 887,697 27.35
Exercised................... (61,301) 1.22 (27,182) 2.00 (67,680) 1.70
Forfeited/canceled.......... (552,852) 8.75 (777,015) 18.10 (648,375) 68.25
-------- -------- --------
Options outstanding at end
of year.................. 977,215 $3.56 675,068 $9.05 843,450 $17.60
-------- ----- -------- ----- -------- ------
-------- ----- -------- ----- -------- ------
Exercisable at end of year.. 199,047 $6.23 291,672 $9.05 174,058 $11.15
-------- ----- -------- ----- -------- ------
-------- ----- -------- ----- -------- ------
Weighted-average fair value
of options granted
during the year.......... $2.23 $5.50 $19.10
----- ----- ------
----- ----- ------
</TABLE>
In April 1997 substantially all of the Company's outstanding options
were canceled and repriced with new options having an exercise price of
$19.70 per share, the fair market value as of the date of the repricing. The
vesting of the repriced options was suspended for a period of six months from
the date of the repricing. A total of 411,292 shares were repriced.
In October 1998, a majority of the Company's outstanding options
were canceled and repriced with new options having an exercise price of $5.63
per share, the fair market value as of the date of the repricing. The
exerciseability of the repriced options was suspended for a period of six
months from the date of the repricing. A total of 418,115 shares were
repriced.
The weighted average remaining contractual life of options as of
December 31, 1999 were as follows:
<TABLE>
<CAPTION>
OUTSTANDING EXERCISABLE
----------------------------------------------- ---------------------------------
WEIGHTED AVERAGE WEIGHTED
NUMBER OF REMAINING AVERAGE
SHARES CONTRACTUAL LIFE EXERCISE SHARES WEIGHTED AVERAGE
RANGE OF EXERCISE PRICES OUTSTANDING (YEARS) PRICE EXERCISABLE EXERCISE PRICE
- ------------------------ ----------- ---------------- --------- ----------- ----------------
<S> <C> <C> <C> <C> <C>
$0.20 to $1.00................... 19,527 5.13 $0.78 19,527 $0.78
$1.94 to $3.28................... 609,299 9.51 2.09 19,290 2.15
$1.13 to $6.00................... 321,389 8.45 4.92 143,105 5.26
Greater than $11.00.............. 27,000 8.21 22.45 17,125 25.15
</TABLE>
Pro forma information regarding results of operations and net loss per
share is required by FASB Statement No. 123, ACCOUNTING FOR STOCK-BASED
COMPENSATION (Statement No. 123) for stock based awards
35
<PAGE>
SYNC RESEARCH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
to employees as if the Company had accounted for such awards using fair value
method permitted under Statement No. 123.
Stock-based awards to employees were valued using the Black-Scholes
option pricing model using the following weighted average assumptions:
<TABLE>
<CAPTION>
1999 1998 1997
------- ------- -------
<S> <C> <C> <C>
Risk free interest rate................................. 6.0% 6.0% 6.0%
Stock volatility factor................................. 1.15 1.14 1.30
Weighted average expected option life................... 6 years 6 years 6 years
Expected dividend yield................................. 0% 0% 0%
</TABLE>
For purposes of pro forma disclosures, the estimated fair value of
the options is amortized to expense over the options' vesting period. Pro
forma information is as follows (in thousands, except for per share
information):
<TABLE>
<CAPTION>
1999 1998 1997
-------- --------- ---------
<S> <C> <C> <C>
Pro forma net loss...................................... $(4,714) $(20,391) $(21,505)
Pro forma net loss per share............................ $ (1.35) $ (5.86) $ (6.26)
</TABLE>
7. COMMITMENTS AND CONTINGENCIES
On November 5, 1997, an action entitled Dalarne Partners, Ltd. Vs 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 Division of California, Southern Division.The
action purported 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 asserted claims for violation of the Securities
Exchange Act of 1934. On January 28, 2000, the court dismissed the complaint
with prejudice. Plaintiffs have appealed the dismissal. There is no date
scheduled for the hearing on the appeal
There are no other material legal proceedings to which the Company is a
party or to which any of its properties are subject. No material legal
proceedings were terminated in the year ended December 31, 1999.
The Company leases its office facilities and certain equipment under
noncancelable operating leases expiring through 2003. The Company also has
various leased equipment under capital leases that are included in furniture,
fixtures and equipment in the accompanying balance sheets. The accumulated
depreciation and amortization of these leased assets was $235,000 and $192,000
at December 31, 1999 and 1998, respectively. Depreciation and amortization of
leased equipment under capital leases are included in depreciation expense.
36
<PAGE>
SYNC RESEARCH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The annual commitment under these noncancelable leases at December
31, 1999 is as follows (in thousands):
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
------- ---------
<S> <C> <C>
2000...................................................................... $ 55 $ 309
2001...................................................................... 7 317
2002...................................................................... - 286
2003...................................................................... - 239
2004...................................................................... - 153
---- ------
Total minimum future lease payments................................... $ 62 $1,304
------
------
Amounts representing interest (9% to 15%)................................. (6)
----
Present value of net minimum lease payments............................... 56
Less current portion of capital lease obligations......................... (49)
----
Long-term portion of capital lease obligations............................ $ 7
----
----
</TABLE>
Rent expense for 1999, 1998 and 1997 was $509,000, $634,000 and
$744,000, respectively.
In connection with certain agreements with several of its customers,
the Company has indemnified these customers against losses arising from
specific events, including product/service performance failures and
third-party intellectual property rights. Management believes that any costs
incurred under these indemnification arrangements will not have a material
adverse impact on the Company's financial position or results of operations.
8. CREDIT AGREEMENT
The Company has a $2,000,000 credit agreement with a bank which
expires in April 2000.Outstanding borrowings under this credit agreement will
be secured by substantially all of the Company's assets and are subject to an
interest rate equal to the Bank's prime rate plus one half percent on amounts
outstanding. There were no borrowings outstanding as of December 31, 1999.
9. BUSINESS SEGMENT
Effective January 1, 1998, the Company adopted the Statement of
Financial Accounting Standards No. 131, DISCLOSURE ABOUT SEGMENTS OF AN
ENTERPRISE AND RELATED INFORMATION(Statement 131). Statement 131 establishes
standards for the way that public business enterprises report information
about operating segments both for annual and interim financial periods. 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 Statement No. 131 did not have
a material effect on the Company's consolidated financial statements.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
37
<PAGE>
PART III
ITEM 10 DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth certain information with respect to the
executive officers and directors of the Company as of March 6, 2000:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
William K. Guerry.......... 34 President and Chief Executive Officer, Chief Financial Officer
and Director
Tim Favazza................ 40 Vice President of Sales and Service
Carl Rambert............... 51 Vice President of Engineering and Marketing
Gregorio Reyes............. 59 Chairman of the Board of Directors
Charles A. Haggerty........ 58 Director
William J. Schroeder....... 55 Director
</TABLE>
MR. GUERRY has served as the Company's President and Chief Executive
Officer and as a Director of the Company since October 1999 and as the
Company's Vice President of Finance and Administration, Secretary and Chief
Financial Officer since June 1997. From January 1987 to June 1997, Mr. Guerry
held various positions, including Audit Senior Manager, with Ernst & Young
LLP. Mr. Guerry received his B.S. in Accounting from California State
Polytechnic University, Pomona. Mr. Guerry is a Certified Public Accountant
in the State of California and is a member of the California Society of
Certified Public Accountants.
MR. FAVAZZA has served as the Company's Vice President of Sales and
Service since August 1999, as the Company's Director of US Sales from
February 1998 to August 1999 and as a Regional Sales Manager from April 1997
to February 1998.From January 1994 through March 1997, Mr. Favazza served
various sales roles including Direct Sales Manager for General DataComm,
Inc., a company that is a wide area networking systems provider.Mr. Favazza
received his B.S. in Computer Science and Mathematics from Townson State
University and his M.S. in Management Information Systems from the University
of Baltimore.
MR. RAMBERT has served as the Company's Vice President of
Engineering since January 2000. Prior to such time, he served as a consultant
to the Company and other high technology companies from October 1997 to
December 1999. From February 1996 to October 1997, Mr. Rambert was Director
of Software Development for Macrolink, Inc., a company that designs and
manufactures communications, storage, memory and other system modules for
super-mini computers, and from November 1992 to February 1996 was a
consultant to several telecommunications, systems and electronics companies.
Mr. Rambert received his B.S. and M.S. in Electrical Engineering from
Pennsylvania State University.
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 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
38
<PAGE>
served as Chairman, President and Chief Executive Officer of Western Digital
Corp. ("Western Digital"), a manufacturer of disk drives from July 1992
through January 2000. He is currently Chairman of the Board. Mr. Haggerty
also serves as a director of Pentair, Inc., Beckman Coulter Inc., and Vixel
Inc. 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. Since February 2000 Mr. Schroeder has served as
President and CEO of HolonTech,Corp, a developer of Internet traffic and
content management. Mr. Schroeder served as President and Chief Executive
Officer and Director of Diamond Multimedia Systems, Inc., a supplier of
multi-media peripherals from May 1994 to June 1999. Mr. Schroeder was
employed by Conner Peripherals, Inc. ("Conner"), a manufacturer and
distributor of hard drives, 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 Inc, S3
Corporation. He received his M.B.A. from Harvard University and M.S.E.E. and
B.E.E. from Marquette University.
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, 1999, all Reporting Persons
complied with all applicable filing requirements except that Mr. Favazza
filed a report late with respect to his initial form 3 filing upon becoming
an executive officer of the Company (filed subsequently via a form 5).
ITEM 11 EXECUTIVE COMPENSATION
The following table shows the compensation paid during 1999 to (i)
all persons who served as the Company's Chief Executive Officer, (ii) the
other most highly compensated executive officers of the Company whose total
annual salary and bonus earned during 1999 exceeded $100,000 and (iii) two
persons who served as executive officers of the Company during a portion of
fiscal 1999 but are no longer executive officers as of December 31, 1999.
39
<PAGE>
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
--------------------------------
SECURITIES
RESTRICTED UNDERLYING
STOCK OPTIONS/SARS ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($) AWARDS (#) COMPENSATION
- --------------------------- ---- --------- ----------- ---------- ------------ -----------------
<S> <C> <C> <C> <C> <C> <C>
Richard W. Martin 1999 $183,330 - - 20,000(1) $4,353(2)(3)
President and Chief Executive Officer 1998 $116,665 - - 85,000(1) $2,866(2)
William K. Guerry 1999 $158,333 - - 105,000(4) $2,672(2)(5)
President and Chief Executive 1998 $130,000 - - 32,000(4) $1,771(2)(5)
Officer; Chief Financial Officer 1997 $68,000 - - 28,000(4) $1,088(2)(5)
Tim Favazza 1999 $101,250 $243,946(6) - 105,000(7) $2,180(2)(5)
Vice President of Sales and Service 1998 $76,667 $322,106(6) - 7,000(7) $1,251(2)(5)
1997 $39,382 $120,994(6) - 5,000(7) $1,768(2)(5)
James D. McNally 1999 $99,944 - - 5,000(8) $103,218(2)(5)(9)
Senior Vice President of Sales 1998 $203,263 - - 29,000(8) $5,650(2)(5)
1997 $160,000 $8,762(6) - 29,000(8) $4,799(2)(5)
Richard N. Thunen(11) 1999 $140,000 - - 105,000(10) $2,735(2)(5)
Vice President of Engineering 1998 $122,000 $ 19,191(6) - 8,000(10) $3,249(2)(5)
1997 $140,000 $4,171(6) - 6,000(10) $2,059(2)(5)
</TABLE>
- ---------------
(1) On June 5, 1998, Mr. Martin was granted options to purchase 65,000
shares of Common Stock at $18.125 per share. On November 6, 1998 Mr.
Martin was granted options to purchase 20,000 shares of Common Stock at
an exercise price of $5.625 per share. On February 12, 1999, Mr. Martin
was granted options to purchase 5,000 shares of Common Stock at an
exercise price of $4.063 per share. On August 11, 1999 Mr. Martin's
option for 65,000 shares at $18.125 per share was canceled. On October
8, 1999 Mr. Martin was granted a fully vested option for 15,000 shares
at a price of $2.1875 per share.
(2) Includes life insurance premiums pursuant to a program generally
available to all employees paid in 1999 in the amount of $2,310 for Mr.
Martin, $297 for Mr. Guerry, $183 for Mr. Favazza, $968 for Mr. McNally
and $635 for Mr. Thunen; paid in 1998 in the amount of $2,866 for Mr.
Martin, $227 for Mr. Guerry, $158 for Mr. Favazza, $3,150 for Mr.
McNally, and $1,324 for Mr. Thunen; paid in 1997 in the amount of $113
for Mr. Guerry, $59 for Mr. Favazza, $2,430 for Mr. McNally, and $1,324
for Mr. Thunen.
(3) Includes temporary living allowances and other relocation expenses in
the amount of $2,043.
(4) On June 23, 1997, Mr. Guerry was granted options to purchase 28,000
shares of Common Stock at $20.625 per share. On June 5, 1998, Mr.
Guerry was granted options to purchase 2,000 shares of Common Stock
each at $18.125 per share.On October 8, 1998, all outstanding options
to purchase Common Stock held by for Mr. Guerry were canceled and
exchanged for new options with an exercise price of $5.625, the closing
sale price of the Company's Common Stock on October 8, 1998. As
consideration for the exchange, Mr. Guerry agreed not to exercise any
options during the six month period after October 8, 1998. On February
12, 1999, Mr. Guerry was granted options to purchase 10,000 shares at
an exercise price of $4.063 per share. On August 11, 1999, Mr. Guerry
was granted options to purchase 95,000 shares of Common Stock at an
exercise price of $1.9375 per share.
40
<PAGE>
(5) Includes defined contribution retirement plan contributions made by the
Company in 1999 in the amount of $2,375 for Mr. Guerry, $1,997 for Mr.
Favazza, $2,250 for Mr. McNally, and $2,100 for Mr. Thunen; in 1998 in
the amount of $1,544 for Mr. Guerry, $1,093 for Mr. Favazza, $2,500 for
Mr. McNally, and $1,925 for Mr. Thunen; in 1997 in the amount of $975
for Mr. Guerry, $1,727 for Mr. Favazza, $2,369 for Mr.
McNally, and $1,022 for Mr. Thunen.
(6) Consists of sales commissions and, in addition for Mr. Favazza, a 1999
incentive based bonus of $4,685.
(7) On April 18, 1997, Mr. Favazza was granted options to purchase 2,000
shares of Common Stock at $16.875 per share. On December 9, 1997, Mr.
Favazza was granted options to purchase 3,000 shares of Common Stock at
$19.688 per share. On January 30, 1998, Mr. Favazza was granted options
to purchase 5,000 shares of Common Stock at $15.313 per share. On June
5, 1998, Mr. Favazza was granted options to purchase 2,000 shares of
Common Stock at $18.125 per share. In October 8, 1998 all outstanding
options to purchase Common Stock held by Mr. Favazza were canceled and
exchanged for new options with an exercise price of $5.625, the closing
sale price of the Company's Common Stock on October 8, 1998. On
February 12, 1999, Mr. Favazza was granted options to purchase 20,000
shares of Common Stock, at an exercise price of $4.063 per share. On
August 11, 1999, Mr. Favazza was granted options to purchase 85,000
shares of Common Stock at an exercise price of $1.9375 per share.
(8) On April 18, 1997, Mr. McNally was granted options to purchase 14,000
shares of Common Stock at $16.875 per share, respectively. On December
9, 1997, Mr. McNally was granted options to purchase 15,000 shares of
Common Stock at $19.688 per share. On October 8, 1998, all outstanding
options to purchase Common Stock held by Mr. McNally were canceled and
exchanged for new options with an exercise price of $5.625, the closing
sale price of the Company's Common Stock on October 8, 1998. As
consideration for the exchange, Mr. McNally agreed not to exercise any
options during the six month period after October 8, 1998. On February
12, 1999, Mr. McNally was granted options to purchase 5,000 shares of
Common Stock at an exercise price of $4.063 per share.
(9) Includes severance payments of $100,000 paid to Mr. McNally pursuant to
the terms of the Settlement Agreement and Mutual Release between the
Company and Mr. McNally dated April 13, 1999. Mr. McNally resigned as
the Company's Senior Vice President of Sales effective as of April 15,
1999.
(10) On January 29, 1997, Mr. Thunen was granted options to purchase 2,000
of Common Stock at $71.25 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 $19.69 per share, the closing
sale price of the Company's Common Stock on April 14, 1997. As
consideration for the exchange, Mr. Thunen agreed to suspend the
vesting on these new options during the six month period after April
14, 1997. On December 9, 1997, Mr. Thunen was granted options to
purchase 2,000 shares of Common Stock at $19.688 per share. On June 5,
1998, Mr. Thunen was granted options to purchase 2,000 shares of Common
Stock at $18.125 per share.On October 8, 1998 all outstanding options
to purchase Common Stock held by Mr. Thunen were canceled and exchanged
for new options with an exercise price of $5.625, the closing sale
price of the Company's Common Stock on October 8, 1998. As
consideration for the exchange, Mr. Thunen agreed not to exercise any
options during the six month period after October 8, 1998. On February
12, 1999, Mr. Thunen was granted options to purchase 31,000 shares of
Common Stock at an exercise price of $4.063 per share. On August 11,
1999, Mr. Thunen was granted options to purchase 74,000 shares of
Common Stock at an exercise price of $1.9375 per share.
(11) Mr. Thunen resigned as the Company's Vice President of Engineering
effective as of January 7, 2000.
41
<PAGE>
The following tables set forth information for the Named Executive
Officers with respect to grants of options to purchase Common Stock of the
Company made in the fiscal year ended December 31, 1999, and the value of all
options held by such Named Executive Officers on December 31, 1999.
OPTION/SAR GRANTS IN FISCAL YEAR 1999
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE VALUE AT
ASSUMED ANNUAL RATES OF
STOCK PRICE APPRECIATION FOR
INDIVIDUAL GRANTS OPTION TERM(3)
------------------------------------------------------------- ------------------------------
NUMBER OF % OF TOTAL
SECURITIES OPTIONS/SARS EXERCISE
UNDERLYING GRANTED TO OR BASE
OPTIONS/SARS EMPLOYEES IN PRICE EXPIRATION
NAME GRANTED # (1) FISCAL YEAR% (2) ($/SH) DATE 5%($) 10%($)
---- ------------- ---------------- ------ ---- ----- ------
<S> <C> <C> <C> <C> <C> <C>
Richard W. Martin....... 5,000 0.5% $4.063 2/12/09 $12,765 $32,379
15,000 1.6% $2.188 10/8/02 $37,696 $48,267
William K. Guerry....... 10,000 1.1% $4.063 2/12/09 $25,530 $64,758
95,000 10.4% $1.938 8/11/09 $116,263 $294,339
Tim Favazza............. 20,000 2.2% $4.063 2/12/09 $51,059 $129,517
85,000 9.3% $1.938 8/11/09 $104,025 $263,356
James D. McNally........ 5,000 0.5% $4.063 2/12/09 $12,765 $32,379
Richard N. Thunen....... 31,000 3.4% $4.063 2/12/09 $79,142 $200,751
74,000 8.1% $1.938 8/11/09 $90,563 $229,274
</TABLE>
- -----------
(1) All options were granted pursuant to the Company's 1991 and 1996 Stock
Plans and become exercisable at the rate of one fourth of the shares
subject to the option on the first anniversary of the vesting
commencement date and 1/48th of the shares at the end of each month
thereafter excepted that Mr. Martin's October 8,1999 option for 15,000
shares were immediately vested.
(2) Options to purchase a total of 916,300 shares of Common Stock were
granted to employees in 1999, including options to purchase 435,600
shares of Common Stock pursuant to the Company's 1996 Stock Plan,
476,700 shares under the Company's 1991 Stock Plan.
(3) These amounts represent certain assumed rates of appreciation only.
Actual gains, if any, on stock option exercises and Common Stock
holdings are dependent on the future performance of the Common Stock
and overall market conditions. There is no assurance that the amounts
reflected will be realized.
42
<PAGE>
AGGREGATED OPTION/SAR EXERCISES IN FISCAL YEAR 1999
AND OPTION/SAR VALUES AT END OF FISCAL YEAR 1999
<TABLE>
<CAPTION>
SECURITIES UNDERLYING NUMBER VALUE OF UNEXERCISED
SHARES OF UNEXERCISED OPTIONS AT IN-THE-MONEY OPTIONS AT
ACQUIRED ON 12/31/99(1): 12/31/99(2)($):
NAME EXERCISE VALUE REALIZED($) EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
---- -------- ----------------- ------------------------- -------------------------
<S> <C> <C> <C> <C>
Richard W. Martin.............. - - 35,938/4,062 $15,938/-$0-
William K. Guerry.............. - - 20,333/114,667 -$0-/$124,688
Tim Favazza.................... - - 10,146/106,854 -$0-/$111,563
James D. McNally............... 14,250 $21,106 -/- -$0-/-$0-
Richard N. Thunen.............. - - 12,416/101,584 $6,750/$97,125
</TABLE>
- -----------------------------
(1) No stock appreciation rights (SARs) were outstanding during 1999.
(2) Based on the closing price of the Company's Common Stock as reported on
the Nasdaq National Market on December 31, 1999 of $3.25. See
"Executive Compensation and Related Information-Compensation of
Executive Officers-Option/SAR Grants in Fiscal Year 1999," footnotes 4
and 5, for discussion of option repricing program which was effected in
October 1998.
COMPENSATION OF DIRECTORS
Mr. Reyes, the Chairman of the Board of Directors, earned $68,000
($6,000 per month through October 1999 and $4000 per month thereafter) during
1999 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. 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 8,000 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 2,000
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. Each option becomes exercisable at the rate of 25% of the total
number of shares subject to such option on the first anniversary of the grant
date, and 1/48th of the total number shares at the end of each month
thereafter.Options granted under the Directors' Plan have an exercise price
equal to the fair market value of the Company's Common Stock on the date of
grant and a term of ten years. Messrs. Haggerty and Schroeder each received
options to purchase 2,000 shares pursuant to the Directors' Plan in 1999.
Subject to their election to the Board of Directors by the stockholders at
the Company's annual meeting of stockholders in 2000, Messrs. Haggerty and
Schroeder will be automatically granted an option to purchase 2,000 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.
43
<PAGE>
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 November 6, 1998, the Company entered into a Management Agreement
with Richard W. Martin. Pursuant to this agreement, upon a merger, sale or
other change of control of the Company, while Mr. Martin serves as Chief
Executive Officer of the Company. The Company has agreed to pay Mr. Martin an
amount equal to $500,000 less the aggregate gross profit received by Mr.
Martin from the sale of securities of the Company held by him in such
transaction. On April 9, 1999, the Company and Mr. Martin amended the
agreement to reduce the payment upon a merger, sale or change of control 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 such 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. Mr. Martin resigned as Chief
Executive Officer and an employee of the Company effective as of October 1999
and thus the Company has no further obligations under the Management
Agreement.
The 1991 Plan provides that in the event of a merger or sale of all
or substantially all of the assets of the Company, the Administrator of the
1991 Plan will either accelerate the vesting of options and stock purchase
rights held by all employees, including executive officers, or shall
accomplish the assumption or substitution of such options and stock purchase
rights by the successor corporation.
On October 8, 1999, the Company entered into an Amended and Restated
Change-of-Control Severance Agreement with William K. Guerry. Pursuant to
this agreement 1) Upon a merger, sale or other change of control of the
Company, while Mr. Guerry serves as Chief Executive Officer of the Company,
50% of Mr. Guerry's options to purchase Common Stock of the Company shall
immediately fully vest and 2) If Mr. Guerry's employment terminates as a
result of involuntary termination other than for cause at any time within
twelve months following a change of control, then, Mr. Guerry shall continue
as a consultant for up to twenty four months at Mr. Guerry's compensation
prior to termination including insurance coverage and 3) Vesting of Mr.
Guerry's stock options shall continue to vest during the consulting period.
44
<PAGE>
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During 1999, Messrs. Haggerty 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.
REPORT OF COMPENSATION COMMITTEE
During 1999, the Compensation Committee of the Board consisted of
Charles A. Haggerty and William Schroeder, both 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. Compensation
committee members utilize their experience, and publicly available resources
as appropriate to determine these base figures.
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. The Company has paid Mr. Favazza incentive compensation in 1997,
1998, 1999 and he may earn incentive compensation in 2000 equal to a certain
percentage of his respective salary based upon the Company's revenue levels.
None of the executive officers of the Company earned bonuses during fiscal
1999.
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 1999, the Company granted stock options under
the 1996 Non-Executive Stock Option Plan (the 1996 Stock Plan) to one new
executive officer, Mr. Rambert (75,000 shares), in connection with his
appointment as an executive officer and stock options under the 1991 Stock
Plan to four executive officers,
45
<PAGE>
Messrs. Guerry (105,000 shares), Favazza (105,000 shares), Thunen (105,000
shares) Martin (20,000 shares) and McNally (5,000 shares).
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.
William K. Guerry was named President and Chief Executive Officer
effective October 1999. From June 1997, Mr. Guerry has also served as the
Company's Chief Financial Officer. In connection with his appointment as Chief
Executive, the board granted Mr. Guerry a non-statutory stock option under
the 1991 stock plan for 95,000 shares and increase his salary from $150,000
to $200,000.
Richard W. Martin served as the Chief Executive Officer of the
Company from June 1998 to October 1999.In connection with his appointment,
the board granted Mr. Martin a non-statutory stock option under the 1991
stock plan for 65,000 shares. In connection with repricing of options in
October 1998, the Board determined not to reprice Mr. Martin's
options. Alternatively, the Board granted Mr. Martin an option to purchase
20,000 shares at $5.625 per share.
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 1999 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 J. Schroeder
<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, 1999.
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.). 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.
[GRAPHIC]
COMPARE CUMULATIVE TOTAL RETURN
AMONG SYNC RESEARCH, INC.,
NASDAQ MARKET INDEX AND MG GROUP INDEX
<TABLE>
<CAPTION>
11/10/95 12/29/95 12/31/96 12/31/97 12/31/98 12/31/99
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Sync Research, Inc.Common Stock............... $100.00 $102.84 $31.25 $8.10 $2.70 $1.48
Nasdaq Market Index........................... $100.00 $101.13 $125.67 $153.73 216.82 551.93
MG Network and Communications
Devices Index.............................. $100.00 $100.74 $131.60 $127.97 $257.07 $382.41
</TABLE>
ASSUMES $100 INVESTED ON NOV. 10, 1995
ASSUMES DIVIDEND REINVESTED
FISCAL YEAR ENDING DEC. 31, 1999
47
<PAGE>
ITEM 12 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth the beneficial ownership of the
Company's Common Stock as of March 6, 2000, as to (i) each person who is
known by the Company to beneficially own more than five percent 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 1999, the most highly compensated executive officers who earned salary
and bonus in excess of $100,000 in 1999 and two persons who served as
executive officers during a portion of fiscal 1999 but were no longer
executive officers as of December 31, 1999 (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>
Steel Partners II
150 East 52nd Street, 21st Floor
New York, NY 10022............................................ 747,080 21.1
Dimensional Fund Advisors
1299 Ocean Ave. 11th Floor
Santa Monica, CA 90404........................................ 220,400 6.2
Gregorio Reyes(2)............................................. 94,980 2.7
Charles A. Haggerty(3)........................................ 12,604 *
William J. Schroeder(4)....................................... 11,333 *
William K. Guerry(5).......................................... 26,487 *
Tim Favazza(6)................................................ 16,450 *
All current directors and executive officers as a group
(6) persons................................................ 161,845 4.5
</TABLE>
- -----------
* 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 6, 2000 are deemed outstanding. Such
shares, however, are not deemed outstanding for the purpose of computing
the percentage ownership of any other person.
2) Consists of 56,292 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, 5,000 shares held by Reyes Partnership IV, 32,000 shares
held directly by Mr. Reyes and 1,688 shares issuable upon the exercise of
options to purchase common stock within 60 days of March 6, 2000.
3) Includes 2,604 shares issuable upon the exercise of options to purchase
Common Stock within 60 days of March 6, 2000.
48
<PAGE>
4) Includes 3,833 shares issuable upon exercise of options to purchase Common
Stock within 60 days after March 6, 2000.
5) Includes 23,708 shares issuable upon exercise of options to purchase Common
Stock within 60 days after March 6, 2000
6) Includes 12,854 shares issuable upon exercise of options to purchase Common
Stock within 60 days after March 6, 2000.
ITEM 13 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 through October 1999 and $4,000
per month thereafter to be paid to Mr. Reyes. For the year ended December 31,
1999, Mr. Reyes earned $68,000 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. See "Employment Contracts, Termination of Employment
and Change-of-Control Arrangements."
On November 6, 1998, the Company entered into a Management Agreement
with Richard W. Martin. See "Employment Contracts, Termination of Employment and
Change-of-Control Agreements."
The Company has granted 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.
49
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
<TABLE>
<CAPTION>
PAGE IN
ANNUAL REPORT
ON FORM 10-K
-------------
<S> <C>
(a) The following documents are filed as part of this Annual Report on Form 10-K:
(1) Report of Ernst & Young LLP, Independent Auditors..................................... 25
Consolidated Balance Sheets at December 31, 1999 and 1998............................. 26
Consolidated Statements of Operations for the Years Ended December 31, 1999, 1998 and
1997.................................................................................. 27
Consolidated Statements of Stockholders' Equity....................................... 28
Consolidated Statements of Cash Flows for the Years Ended December 31, 1999, 1998 and
1997.................................................................................. 29
Notes to Consolidated Financial Statements............................................ 30
(2) Financial Statement Schedule
Schedule II-Valuation and Qualifying Accounts for the Years Ended December 31, 1999,
1998 and 1997......................................................................... 54
Schedules not listed above have been omitted because the information required to be
set forth therein is not applicable or is shown in the financial statements or notes
thereto.
(3) Exhibits (numbered in accordance with Item 601 of Regulation S-K)
</TABLE>
EXHIBIT
NUMBER DESCRIPTION
------ -----------
2.1(3) Agreement and Plan of Reorganization dated June 27, 1996
between the Company and TyLink Corporation.
3.1(12) Amended and Restated Certificate of Incorporation of
Registrant.
3.3 Amended and Restated Bylaws of Registrant.
9.1(1) Amended and Restated Shareholders' Agreement dated April 25,
1994.
10.1(1) Form of Indemnification Agreement.
10.2(8) Amended and Restated 1991 Stock Plan (amended as of June 12,
1998) and form of Option Agreement.
10.3(4) Amended 1995 Employee Stock Purchase Plan (amended as of
September 27, 1996) and form of Subscription Agreement.
10.4(8) Amended and Restated 1995 Directors' Option Plan (amended as
of June 12, 1998) and form of Option Agreement.
10.5(1) Amended and Restated Investors' Rights Agreement among the
Registrant and certain security holders of the Company, dated
as of April 25, 1994.
10.6(1) Consulting Agreement between the Company and Gregorio Reyes
dated January 1995.
10.7(1) Series C Preferred Stock Purchase Agreement dated April 25,
1994.
10.8(1) 401(k) Plan.
10.15(1) Loan and Security Agreement between the Company and Silicon
Valley Bank dated September 18, 1991, and amendments dated
October 20, 1992 and August 31, 1995 thereto.
50
<PAGE>
10.15a(1) Amendment to Loan and Security Agreement between the Company
and Silicon Valley Bank dated October 5, 1995.
10.15b(6) Amendments to Loan and Security Agreement between the Company
and Silicon Valley Bank dated June 10, 1997, October 6, 1996
and July 3, 1996.
10.15c(10) Amendment to Loan and Security Agreement between the Company
and Silicon Valley Bank dated December 3, 1997.
10.15d(13) Amendment to Loan and Security Agreement between the Company
and Silicon Valley Bank dated April 14, 1999.
10.15e Amendment to Loan and Security Agreement between the Company
and Silicon Valley Bank dated October 31, 1999.
10.17(1) Letter Agreement dated July 9, 1995 between the Company and
Ronald J. Scioscia.
10.18(2) Letter Agreement dated March 5, 1996 between Roger Dorf and
the Company.
10.20(5) Assumed TyLink Corporation 1994 Equity Incentive Plan.
10.22(4) Employment Agreement between the Company and Richard Swee,
dated August 23, 1996.
10.23(4) Form of Noncompetition Agreement between the Company and
Richard Swee, dated August 23, 1996.
10.24(4) Form of Severance Agreement between the Company and each of
John Rademaker and Roger Dorf, dated September 30, 1996.
10.25(4) Form of Severance Agreement between the Company and other
Company executive officers.
10.26(4) Real Estate Lease between TyLink and Thomas J. Flatley d/b/a
The Flatley Company, dated May 14, 1991.
10.26a(13) Third Amendment to Lease for 10C Commerce Way, Norton, MA
dated July 28, 1999.
10.27(9) Amended and Restated 1996 Non-Executive Stock Option Plan
(amended as of August 21, 1998).
10.28(7) Letter Agreement dated June 6, 1997 between William K. Guerry
and the Company.
10.29(10) Letter Agreement dated August 14, 1997 between Salvatore Alini
and the Company.
10.30(10) Form of Severance Agreement between the Company and Gregorio
Reyes, dated October 24, 1997.
10.31(10) Form of Settlement Agreement and Mutual Release dated October
27, 1997 between Roger A. Dorf and the Company.
10.32(10) Form of Settlement Agreement and Mutual Release dated October
27, 1997 between Dominic J. Genovese and the Company.
10.33(10) Form of Settlement Agreement and Mutual Release dated November
16, 1997 between Otto Berlin and the Company.
10.34(9) Settlement Agreement and Mutual Release with John Rademaker
dated September 28, 1998.
10.35(10) Settlement Agreement and Mutual Release with Salvatore Alini
dated September 30, 1998.
10.36(10) Settlement Agreement and Mutual Release with Karen Ratta dated
December 28, 1998.
10.37(10) Management Agreement between the Company and Richard W.
Martin, dated December 28, 1998.
10.38(11) Settlement Agreement and Mutual Release with Douglas Antaya
dated February 3, 1999.
10.39(12) Settlement Agreement and Mutual Release with James D. McNally
dated April 13, 1999.
10.40(12) Amended and Restated Management Agreement between the Company
and Richard Martin dated April 9, 1999.
10.42(13) Standard Industrial Lease for 12 Morgan, Irvine, CA dated July
19, 1999.
10.43 Form of Amended and Restated Severance Agreement between the
Company and William Guerry, dated October 8, 1999.
21(10) Subsidiaries of the Company.
23.1 Consent of Ernst & Young LLP, Independent Auditors.
24.1 Power of Attorney. (Referenced on Signature Page)
27.1 Financial Data Schedule.
- -----------------------
(1) Incorporated by reference from exhibits filed in response to Item
16(a), "Exhibits," of the Company's Registration Statement on Form S-1,
as amended (File No. 33-06910), which became effective on November 9,
1995.
(2) Incorporated by reference from exhibits filed in response to Item 14,
"Exhibits," of the Company's
51
<PAGE>
Annual Report on Form 10-K for the fiscal year ended December 31, 1995.
(3) Incorporated by reference from exhibits filed in response to Item 6,
"Exhibits," of the Company's Quarterly Report on Form 10-Q for the
fiscal quarter ended June 30, 1996, filed August 12, 1996.
(4) Incorporated by reference from exhibits filed in response to Item 6,
"Exhibits," of the Company's Quarterly Report on Form 10-Q for the
fiscal quarter ended September 30, 1996, filed November 14, 1996.
(5) Incorporated by reference from Company's Registration Statement on Form
S-8 (No. 333-12315), filed on September 19, 1996.
(6) Incorporated by reference from exhibits filed in response to Item 6,
"Exhibits," of the Company's Quarterly Report on Form 10-Q for the
fiscal quarter ended June 30, 1997, filed August 14, 1997.
(7) Incorporated by reference from exhibits filed in response to Item 6,
"Exhibits," of the Company's Quarterly Report on Form 10-Q for the
fiscal quarter ended September 30, 1997, filed November 14, 1997.
(8) Incorporated by reference from exhibits filed in response to Item 6,
"Exhibits," of the Company's Quarterly Report on Form 10-Q for the
fiscal quarter ended June 30, 1998, filed August 14, 1998.
(9) Incorporated by reference from exhibits filed in response to Item 6,
"Exhibits," of the Company's Quarterly Report on Form 10-Q for the
fiscal quarter ended September 30, 1998, filed November 16, 1998.
(10) Incorporated by reference from exhibits filed in response to Item 14,
"Exhibits," of the Company's Annual Report on Form 10-K for the fiscal
year ended December 31, 1998.
(11) Incorporated by reference from exhibits filed in response to Item 6,
"Exhibits," of the Company's Quarterly Report on Form 10-Q for the
fiscal quarter ended March 31, 1999, filed May 16, 1999.
(12) Incorporated by reference from exhibits filed in response to Item 6,
"Exhibits," of the Company's Quarterly Report on Form 10-Q for the
fiscal quarter ended June 30, 1999, filed August 16, 1999.
(13) Incorporated by reference from exhibits filed in response to Item 6,
"Exhibits," of the Company's Quarterly Report on Form 10-Q for the
fiscal quarter ended September 30, 1999, filed November 15, 1999.
(b) Reports on Form 8-K
None.
52
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
By: /s/ William K. Guerry
------------------------------------
William K. Guerry
PRESIDENT AND CHIEF EXECUTIVE OFFICER
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints William K. Guerry, his attorney-in-fact,
with the power of substitution, for him in any and all capacities, to sign any
amendments to this Report on Form 10-K, and to file the same, with exhibits
thereto and other documents in connection therewith with the Securities and
Exchange Commission, hereby ratifying and confirming all thatsaid
attorney-in-fact, or his substitute or substitutes may do or cause to be done by
virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934,
this Registration Statement has been signed by the following persons on behalf
of the registrant and in the capacities and on the dates indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ William K. Guerry President and Chief Executive Officer, Chief March 23, 2000
- ----------------------- Financial Officer, Director
William K. Guerry
/s/ Gregorio Reyes Chairman of the Board March 23, 2000
- -----------------------
Gregorio Reyes
/s/ Charles A. Haggerty Director March 23, 2000
- -----------------------
Charles A. Haggerty
/s/ William J. Schroeder Director March 23, 2000
- ------------------------
William J. Schroeder
</TABLE>
53
<PAGE>
SYNC RESEARCH, INC.
SCHEDULE II-VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
<TABLE>
<CAPTION>
BALANCE AT DEDUCTIONS/
BEGINNING OF RECOVERIES BALANCE AT
DESCRIPTION PERIOD ADDITIONS AND WRITE-OFFS ADJUSTMENTS(1) END OF PERIOD
----------- ------------ --------- -------------- -------------- -------------
<S> <C> <C> <C> <C> <C>
1999
Allowance for doubtful
accounts receivable..... $213,863 $225,265 $(166,513) $ - $272,615
Inventory reserves......... 543,286 516,432 (451,262) - 608,456
1998
Allowance for doubtful
accounts receivable..... $393,118 $297,927 $(477,182) $ - $213,863
Inventory reserves......... 603,252 446,504 (506,470) - 543,286
1997
Allowance for doubtful
accounts receivable..... $348,276 $223,109 $(178,267) $ - $393,118
Inventory reserves......... 658,463 449,207 (504,418) - 603,252
</TABLE>
<PAGE>
BYLAWS
OF
SYNC RESEARCH, INC.
(A DELAWARE CORPORATION)
-i-
<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
-ii-
<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) In addition to the requirements of Section 2.5, 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 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.
-iii-
<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) 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 Section
2.5, who shall be entitled to vote at the meeting and who complies with the
notice procedures set forth in Section 2.5.
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. 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
-iv-
<PAGE>
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
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
-v-
<PAGE>
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
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.
-vi-
<PAGE>
(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 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
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<PAGE>
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 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
-viii-
<PAGE>
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 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
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<PAGE>
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
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.
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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 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.
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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.
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
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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.
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.
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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 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
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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
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
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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 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
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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 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.
ARTICLE VIII
GENERAL MATTERS
8.1 CHECKS
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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 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,
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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 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, 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.
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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
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
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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 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
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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
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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TABLE OF CONTENTS
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ARTICLE I CORPORATE OFFICES........................................ii
1.1 REGISTERED OFFICE........................................ii
1.2 OTHER OFFICES............................................ii
ARTICLE II MEETINGS OF STOCKHOLDERS.................................ii
2.1 PLACE OF MEETINGS........................................ii
2.2 ANNUAL MEETING...........................................ii
2.3 SPECIAL MEETING..........................................iv
2.4 NOTICE OF STOCKHOLDERS' MEETINGS.........................iv
2.5 ADVANCE NOTICE OF STOCKHOLDER NOMINEES...................iv
2.6 MANNER OF GIVING NOTICE, AFFIDAVIT OF NOTICE..............v
2.7 QUORUM....................................................v
2.8 ADJOURNED MEETING; NOTICE.................................v
2.9 CONDUCT OF BUSINESS.......................................v
210. VOTING...................................................vi
2.11 WAIVER OF NOTICE.........................................vi
2.12 RECORD DATE FOR STOCKHOLDER NOTICE, VOTING; GIVING
CONSENTS.................................................vi
2.13 PROXIES.................................................vii
ARTICLE III DIRECTORS...............................................vii
3.1 POWERS..................................................vii
3.2 NUMBER OF DIRECTORS.....................................vii
3.3 ELECTION, QUALIFICATION AND TERM OF OFFICE OF
DIRECTOR................................................vii
3.4 RESIGNATION AND VACANCIES..............................viii
3.5 PLACE OF MEETINGS, MEETINGS BY TELEPHONE...............viii
-xxiv-
<PAGE>
3.6 REGULAR MEETINGS.........................................ix
3.7 SPECIAL MEETINGS; NOTICE.................................ix
3.8 QUORUM...................................................ix
3.9 WAIVER OF NOTICE.........................................ix
3.10 BOARD ACTION BY WRITTEN CONSENT WITHOUT A MEETING.........x
3.11 FEES AND COMPENSATION OF DIRECTORS........................x
3.12 APPROVAL OF LOANS TO OFFICERS.............................x
3.13 REMOVAL OF DIRECTORS......................................x
ARTICLE IV COMMITTEES...............................................xi
4.1 COMMITTEES OF DIRECTORS..................................xi
4.2 COMMITTEE MINUTES........................................xi
4.3 MEETINGS AND ACTION OF COMMITTEES.......................xii
ARTICLE V OFFICERS................................................xii
5.1 OFFICERS................................................xii
5.2 APPOINTMENT OF OFFICERS.................................xii
5.3 SUBORDINATE OFFICERS....................................xii
5.4 REMOVAL AND RESIGNATION OF OFFICERS.....................xii
5.5 VACANCIES IN OFFICES...................................xiii
5.6 CHAIRMAN OF THE BOARD..................................xiii
5.7 CHIEF EXECUTIVE OFFICER................................xiii
5.8 PRESIDENT..............................................xiii
5.9 VICE PRESIDENTS.........................................xiv
5.10 SECRETARY...............................................xiv
5.11 CHIEF FINANCIAL OFFICER.................................xiv
-xxv-
<PAGE>
5.12 REPRESENTATIONS OF SHARES OF OTHER CORPORATIONS..........xv
5.13 AUTHORITY AND DUTIES OF OFFICERS.........................xv
ARTICLE VI INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES
AND OTHER AGENTS.........................................xv
6.1 INDEMNIFICATION OF DIRECTORS AND OFFICERS................xv
6.2 INDEMNIFICATION OF OTHERS................................xv
6.3 PAYMENT OF EXPENSES IN ADVANCE..........................xvi
6.4 INDEMNITY NOT EXCLUSIVE.................................xvi
6.5 INSURANCE...............................................xvi
6.6 CONFLICTS...............................................xvi
ARTICLE VII RECORDS AND REPORTS....................................xvii
7.1 MAINTENANCE AND INSPECTION OF RECORDS..................xvii
7.2 INSPECTION BY DIRECTORS................................xvii
ARTICLE VIII GENERAL MATTERS........................................xvii
8.1 CHECKS.................................................xvii
8.2 EXECUTION OF CORPORATE CONTRACTS AND INSTRUMENTS......xviii
8.3 STOCK CERTIFICATES; PARTLY PAID SHARES................xviii
8.4 SPECIAL DESIGNATION ON CERTIFICATES...................xviii
8.5 LOST CERTIFICATES.......................................xix
8.6 CONSTRUCTION; DEFINITIONS...............................xix
8.7 DIVIDENDS...............................................xix
8.8 FISCAL YEAR.............................................xix
8.9 SEAL.....................................................xx
8.10 TRANSFER OF STOCK........................................xx
-xxvi-
<PAGE>
8.11 STOCK TRANSFER AGREEMENTS................................xx
8.12 REGISTERED STOCKHOLDERS..................................xx
ARTICLE IX AMENDMENTS...............................................xx
ARTICLE X DISSOLUTION..............................................xx
ARTICLE XI CUSTODIAN...............................................xxi
11.1 APPOINTMENT OF A CUSTODIAN IN CERTAIN CASES.............xxi
11.2 DUTIES OF CUSTODIANS...................................xxii
-xxvii-
<PAGE>
EXHIBIT 10.15e
SILICON VALLEY BANK
AMENDMENT TO LOAN AND SECURITY
AGREEMENT
BORROWER: SYNC RESEARCH, INC.
ADDRESS: 40 PARKER
IRVINE, CALIFORNIA 92618
DATED: OCTOBER 31, 1999
THIS AMENDMENT TO LOAN AGREEMENT is entered into between SILICON VALLEY
BANK ("Silicon") and the borrower named above (the "Borrower").
The Parties agree to amend, effective as of the date hereof, the Loan
and Security Agreement between them, dated September 18, 1991, as amended by
that Extension Agreement dated August 3, 1992, by that Amendment to Loan
Agreement dated October 20, 1992, by that Amendment to Loan Agreement dated
August 23, 1993, by that Amendment to Loan Agreement dated February 10, 1994, by
that Amendment to Loan Agreement dated July 18, 1994, by that Amendment to Loan
Agreement dated September 20, 1994, by that Amendment to Loan and Security
Agreement dated August 31, 1995, by that Amendment to Loan and Security
Agreement (the "October 1995 Amendment") dated October 5, 1995, by that
Amendment to Loan Agreement dated July 3, 1996, by that Amendment to Loan and
Security Agreement dated October 6, 1996, by that Amendment to Loan and Security
Agreement dated June 10, 1997, by that Amendment to Loan and Security Agreement
dated as of December 3, 1997, and by that Amendment to Loan and Security
Agreement dated April 14, 1999 (as so amended and as otherwise amended from time
to time being referred to herein as the "Loan Agreement"), as follows.
(Capitalized terms used but not defined in this Agreement, shall have the
meanings set forth in the Loan Agreement.)
1. REVISED CREDIT LIMIT. That section of the Schedule to Loan Agreement
entitled "Credit Limit (Section 1.1)" is hereby amended in its entirety to read
as follows:
"CREDIT LIMIT
(Section 1.1): An amount not to exceed (i) $2,000,000
at any one time outstanding or (ii) 80%
of the Net Amount of Borrower's
accounts, which Silicon in its
discretion deems eligible for borrowing.
"Net Amount" of an account means the
gross amount of the account, minus all
applicable sales, use, excise and other
similar taxes and minus all discounts,
credits and allowances of any nature
granted or claimed.
Without limiting the fact that the
determination of which accounts are
eligible for borrowing is a matter of
Silicon's discretion, the following will
not be deemed eligible for
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<PAGE>
SILICON VALLEY BANK AMENDMENT TO LOAN AND SECURITY AGREEMENT
- -------------------------------------------------------------------------------
borrowing: accounts outstanding for
more than 90 days from the invoice date,
accounts subject to any contingencies,
accounts owing from any government
agency (unless Borrower completes such
assignment of claims documentation and
other documentation that Silicon
determines is necessary or desirable to
perfect and protect the interest of
Silicon therein), accounts owing from an
account debtor outside the United States
(unless pre-approved by Silicon in its
discretion, or backed by a letter of
credit satisfactory to Silicon, or FCIA
insured satisfactory to Silicon),
accounts owing from one account debtor
to the extent they exceed 25% of the
total eligible accounts outstanding,
accounts owing from an affiliate of
Borrower, and accounts owing from an
account debtor to whom Borrower is or
may be liable for goods purchased from
such account debtor or otherwise. In
addition, if more than 50% of the
accounts owing from an account debtor
are outstanding more than 90 days from
the invoice date or are otherwise not
eligible accounts, then all accounts
owing from that account debtor will be
deemed ineligible for borrowing.
STANDBY LETTER OF CREDIT In addition to the Loans available to
the Borrower as set forth above, Silicon
has issued a standby letter of credit in
the amount of $300,000 that is cash
collateralized on a separate basis
pursuant to standard Silicon
documentation and such standby letter of
credit obligations are not considered a
sublimit of the Credit Limit set forth
above."
2. REVISED FINANCIAL COVENANTS. That section of the Schedule to Loan
Agreement entitled "Credit Limit (Section 1.1)" is hereby amended in its
entirety to read as follows:
"FINANCIAL COVENANTS
(Section 4.1): Borrower shall comply with all of the
following covenants. Compliance shall be
determined as of the end of each month,
except as otherwise specifically
provided below:
LIQUIDITY COVENANT Borrower shall maintain cash on hand,
cash equivalents and marketable
securities in an amount not less than
$6,000,000, with the understanding that
at least $2,000,000 thereof shall be on
deposit with Silicon at all times.
DEBT TO NET WORTH RATIO: Borrower shall maintain a ratio of total
liabilities to tangible net worth of not
more than 1.00 to 1.
PROFITABILITY: Borrower shall not incur a loss (after
taxes) for the fiscal quarter ending
December 31, 1999 in excess of
$1,000,000; and Borrower shall not incur
a loss (after taxes) for the fiscal
quarter ending March 31, 2000 in excess
of $1,000,000. Alternatively, Borrower
shall also be deemed to comply with this
covenant if Borrower does not incur a
loss (after taxes) in excess of
$2,000,000 for the two quarter
cumulative period ending March 31, 2000.
-2-
<PAGE>
SILICON VALLEY BANK AMENDMENT TO LOAN AND SECURITY AGREEMENT
- -------------------------------------------------------------------------------
DEFINITIONS: "Current assets," and "current
liabilities" shall have the meanings
ascribed to them in accordance with
generally accepted accounting
principles.
"Tangible net worth" means the excess of
total assets over total liabilities,
determined in accordance with generally
accepted accounting principles,
excluding however all assets which would
be classified as intangible assets under
generally accepted accounting
principles, including without limitation
goodwill, licenses, patents, trademarks,
trade names, copyrights, and franchises.
"Quick Assets" means cash on hand or on
deposit in banks, readily marketable
securities issued by the United States,
readily marketable commercial paper
rated "A-1" by Standard & Poor's
Corporation (or a similar rating by a
similar rating organization),
certificates of deposit and banker's
acceptances, and accounts receivable
(net of allowance for doubtful
accounts).
SUBORDINATED DEBT: "Liabilities" for purposes of the
foregoing covenants do not include
indebtedness which is subordinated to
the indebtedness to Silicon under a
subordination agreement in form
specified by Silicon or by language in
the instrument evidencing the
indebtedness which is acceptable to
Silicon."
3. REPORTING. Paragraph 2 of that section of the Schedule to Loan
Agreement entitled "Other Covenants (Section 4.1)" is hereby amended in its
entirety to read as follows:
"2. MONTHLY BORROWING BASE CERTIFICATE AND LISTING. Within 20 days of
the end of each month, Borrower shall provide Silicon with a Borrowing
Base Certificate in such form as Silicon shall specify, and an aged
listing of Borrower's accounts receivable."
4. FEE. Borrower shall pay to Silicon a facility fee in the amount of
$1,000 concurrently, which shall be in addition to all interest and all other
amounts payable under the Loan Agreement, and which shall not be refundable.
5. REPRESENTATIONS TRUE. Borrower represents and warrants to Silicon
that all representations and warranties set forth in the Loan Agreement, as
amended hereby, are true and correct.
6. GENERAL PROVISIONS. This Amendment, the Loan Agreement, any prior
written amendments to the Loan Agreement signed by Silicon and the Borrower, and
the other written documents and agreements between Silicon and the Borrower set
forth in full all of the representations and agreements of the parties with
respect to the subject matter hereof and supersede all prior discussions,
representations, agreements and understandings between the parties with respect
to the subject hereof. Except as herein expressly amended, all of the terms and
provisions of the Loan Agreement, as so amended, and all other documents and
agreements between Silicon and the Borrower shall continue in full force and
effect and the same are hereby ratified and confirmed.
-3-
<PAGE>
SILICON VALLEY BANK AMENDMENT TO LOAN AND SECURITY AGREEMENT
- -------------------------------------------------------------------------------
SYNC RESEARCH, INC. SILICON VALLEY BANK
By /s/ William K. Guerry By /s/ Marla Johnson
PRESIDENT OR VICE PRESIDENT
---------------------------- --------------------
Title VICE PRESIDENT
--------------------
By /s/ William K. Guerry
SECRETARY OR ASS'T SECRETARY
----------------------------
-4-
<PAGE>
SILICON VALLEY BANK
CERTIFIED RESOLUTION
BORROWER: SYNC RESEARCH, INC., A CORPORATION
ORGANIZED UNDER THE LAWS OF THE
STATE OF DELAWARE
ADDRESS: 12 MORGAN
IRVINE, CALIFORNIA 92618
DATE: OCTOBER 31, 1999
I, the undersigned, Secretary or Assistant Secretary of the above-named
borrower, a corporation organized under the laws of the state set forth above,
do hereby certify that the following is a full, true and correct copy of
resolutions duly and regularly adopted by the Board of Directors of said
corporation as required by law, and by the by-laws of said corporation, and that
said resolutions are still in full force and effect and have not been in any way
modified, repealed, rescinded, amended or revoked.
RESOLVED, that this corporation borrow from Silicon Valley Bank
("Silicon"), from time to time, such sum or sums of money as, in the
judgment of the officer or officers hereinafter authorized hereby, this
corporation may require.
RESOLVED FURTHER, that any officer of this corporation be, and he or she is
hereby authorized, directed and empowered, in the name of this corporation,
to execute and deliver to Silicon, and Silicon is requested to accept, the
loan agreements, security agreements, notes, financing statements, and
other documents and instruments providing for such loans and evidencing
and/or securing such loans, with interest thereon, and said authorized
officers are authorized from time to time to execute renewals, extensions
and/or amendments of said loan agreements, security agreements, and other
documents and instruments.
RESOLVED FURTHER, that said authorized officers be and they are hereby
authorized, directed and empowered, as security for any and all
indebtedness of this corporation to Silicon, whether arising pursuant to
this resolution or otherwise, to grant, transfer, pledge, mortgage, assign,
or otherwise hypothecate to Silicon, or deed in trust for its benefit, any
property of any and every kind, belonging to this corporation, including,
but not limited to, any and all real property, accounts, inventory,
equipment, general intangibles, instruments, documents, chattel paper,
notes, money, deposit accounts, furniture, fixtures, goods, and other
property of every kind, and to execute and deliver to Silicon any and all
grants, transfers, trust receipts, loan or credit agreements, pledge
agreements, mortgages, deeds of trust, financing statements, security
agreements and other hypothecation agreements, which said instruments and
the note or notes and other instruments referred to in the preceding
paragraph may contain such provisions, covenants, recitals and agreements
as Silicon may require and said authorized officers may approve, and the
execution thereof by said authorized officers shall be conclusive evidence
of such approval.
RESOLVED FURTHER, that Silicon may conclusively rely upon a certified copy
of these resolutions and a certificate of the Secretary or Ass't Secretary
of this corporation as to the officers of this corporation and their
offices and signatures, and continue to conclusively rely on such certified
copy of these resolutions and said certificate for all past, present and
future transactions until written notice of any change hereto or thereto is
given to Silicon by this corporation by certified mail, return receipt
requested.
The undersigned further hereby certifies that the following persons are the
duly elected and acting officers of the corporation named above as borrower and
that the following are their actual signatures:
<TABLE>
<CAPTION>
NAMES OFFICE(S) ACTUAL SIGNATURES
----- --------- -----------------
<S> <C> <C>
William K. Guerry President & Ceo x /s/ William K. Guerry
------------------------------ ------------------------------- ---------------------------
------------------------------ ------------------------------- x---------------------------
</TABLE>
-1-
<PAGE>
SILICON VALLEY BANK LOAN AND SECURITY AGREEMENT
- -------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
------------------------------ ------------------------------- x---------------------------
------------------------------ ------------------------------- x---------------------------
</TABLE>
IN WITNESS WHEREOF, I have hereunto set my hand as such Secretary or
Assistant Secretary on the date set forth above.
/s/ William K. Guerry
--------------------------------
Secretary or Assistant Secretary
-2-
<PAGE>
EXHIBIT 10.43
SYNC RESEARCH, INC.
AMENDED AND RESTATED
CHANGE OF CONTROL SEVERANCE AGREEMENT
This Amended and Restated Change of Control Severance Agreement (the
"AGREEMENT") is made and entered into by and between William K. Guerry (the
"EMPLOYEE") and Sync Research, Inc., a Delaware corporation (the "COMPANY"),
effective as of October 8, 1999.
RECITALS
A. It is expected that the Company from time to time will consider
the possibility of an acquisition by another company or other change of
control. The Board of Directors of the Company (the "BOARD") recognizes that
such consideration can be a distraction to the Employee and can cause the
Employee to consider alternative employment opportunities. The Board has
determined that it is in the best interests of the Company and its
stockholders to assure that the Company will have the continued dedication
and objectivity of the Employee, notwithstanding the possibility, threat or
occurrence of a Change of Control (as defined below) of the Company.
B. The Board believes that it is in the best interests of the Company
and its stockholders to provide the Employee with an incentive to continue his
or her employment and to motivate the Employee to maximize the value of the
Company upon a Change of Control for the benefit of its stockholders.
C. The Board believes that it is imperative to provide the Employee
with certain severance benefits upon Employee's termination of employment
following a Change of Control that provide the Employee with enhanced financial
security and incentive and encouragement to the Employee to remain with the
Company notwithstanding the possibility of a Change of Control.
D. For the reasons set forth in these recitals, the Company and
Employee entered into a Change of Control Severance Agreement dated June 23,
1997 (the "PRIOR SEVERANCE AGREEMENT"). The Company and Employee desire to amend
and restate the Prior Severance Agreement in its entirety hereby.
E. Certain capitalized terms used in the Agreement are defined in
Section 6 below.
The parties hereto agree to amend and restate the Prior Severance
Agreement in its entirety as follows:
1. TERM OF AGREEMENT. This Agreement shall terminate upon the date that
all obligations of the parties hereto with respect to this Agreement have been
satisfied.
<PAGE>
2. AT-WILL EMPLOYMENT. The Company and the Employee acknowledge that
the Employee's employment is and shall continue to be at-will, as defined under
applicable law. If the Employee's employment terminates for any reason,
including (without limitation) any termination prior to a Change of Control, the
Employee shall not be entitled to any payments, benefits, damages, awards or
compensation other than as provided by this Agreement or as may otherwise be
available in accordance with the Company's established employee plans and
practices or pursuant to other agreements with the Company.
3. STOCK VESTING ON CHANGE OF CONTROL.
(A) ACCELERATION UPON CHANGE OF CONTROL. Upon a Change of
Control, fifty percent (50%) of the Employee's options to purchase Common Stock
of the Company and/or shares of restricted stock of the Company that are
unvested as of the date of the Change of Control (the "UNVESTED SHARES") shall
immediately become vested.
(B) VESTING OF REMAINING UNVESTED SHARES. Upon a Change of
Control, the remainder of the Unvested Shares for which vesting was not
accelerated pursuant to Section 3(a) shall continue to vest at the same monthly
rate as prior to the Change of Control (i.e., if 200 shares vested per month
prior to the Change of Control, the remaining Unvested Shares will continue to
vest at the rate of 200 shares per month after the Change of Control) and in
accordance with the applicable stock option or restricted stock purchase
agreement.
4. CONSULTING ARRANGEMENT.
(A) TERMINATION FOLLOWING A CHANGE OF CONTROL. If the
Employee's employment terminates as a result of Involuntary Termination other
than for Cause at any time within twelve (12) months following a Change of
Control, then, subject to Section 6, the Employee and the Company shall enter
into a consulting arrangement on the following terms:
(1) CONSULTING ENGAGEMENT. Effective as of the
Termination Date, and subject to the terms of this Agreement, the Company agrees
to retain the Employee as a consultant to perform such services (the "CONSULTING
SERVICES") for the Company as may be reasonably requested from time to time by
an officer of the Company (the "CONSULTING ARRANGEMENT"). The term of this
Consulting Arrangement shall commence on the Termination Date and expire on the
earlier of (i) the date the employee is working as a salaried employee of or
consultant to another person, company or entity which is actually or potentially
in competition with any business conducted by the Company, as determined by the
Company in its sole discretion, (ii) at the Employee's option, the date the
Employee is working as a salaried employee of or consultant to another person,
company or entity, or (iii) 24 months following the Termination Date. As
consideration for the Employee's services under the Consulting Arrangement, the
Company shall pay in cash to Employee an amount equal to 1/12th of the
Employee's Annual Compensation on the last day of each full month following the
Termination Date during which the Consulting Arrangement is in effect. The
Employee's stock options and/or restricted stock shall continue to vest during
the term of the Consulting Arrangement pursuant to Section 3(b). Notwithstanding
the foregoing, the Consulting Arrangement may be terminated earlier by either
party upon five days written notice of termination if the other party
-2-
<PAGE>
fails to cure any material breach of its obligations hereunder within 10 days
after receipt of notice specifying such breach.
(2) CONTINUED INSURANCE COVERAGE. Subject to the
provisions of this Section 4(a)(2), the Employee shall be entitled to one
hundred percent (100%) Company-paid health, dental and life insurance coverage
at the same level of coverage as was provided to such Employee immediately prior
to the Change of Control (the "COMPANY-PAID COVERAGE"). If such coverage
includes the Employee's dependents immediately prior to the Change of Control,
such dependents shall also be covered at Company expense. Company-Paid Coverage
shall continue until the earlier of (i) termination of the Consulting
Arrangement or (ii) the date that the Employee and his or her dependents become
covered under another employer's group health, dental or life insurance plans
that provide Employee and his or her dependents with comparable benefits and
levels of coverage. For purposes of Title X of the Consolidated Budget
Reconciliation Act of 1985 ("COBRA"), the date of the "qualifying event" for
Employee and his or her dependents shall be the date upon which the Company-Paid
Coverage terminates.
(B) VOLUNTARY RESIGNATION; TERMINATION FOR CAUSE. If the
Employee's employment terminates by reason of the Employee's voluntary
resignation (and is not an Involuntary Termination), or if the Employee is
terminated for Cause, then the Employee shall not be entitled to receive
payments for consulting services or other benefits under Section 4(a) except for
those (if any) as may then be established under the Company's then existing
severance and benefits plans and practices or pursuant to other agreements with
the Company.
(C) DISABILITY; DEATH. If the Company terminates the
Employee's employment as a result of the Employee's Disability, or such
Employee's employment is terminated due to the death of the Employee, then the
Employee shall not be entitled to receive payments for consulting services or
other benefits under Section 4(a) except for those (if any) as may then be
established under the Company's then existing severance and benefits plans and
practices or pursuant to other agreements with the Company.
(D) TERMINATION APART FROM CHANGE OF CONTROL. In the event the
Employee's employment is terminated for any reason, either prior to the
occurrence of a Change of Control or after the twelve-month period following a
Change of Control, then the Employee shall not be entitled to receive payments
for consulting services or other benefits under Section 4(a) except for those
(if any) as may then be established under the Company's existing severance and
benefits plans and practices or pursuant to other agreements with the Company.
5. ATTORNEY FEES, COSTS AND EXPENSES. The Company shall promptly
reimburse Employee, on a monthly basis, for the reasonable attorney fees, costs
and expenses incurred by the Employee in connection with any action brought by
Employee to enforce his or her rights hereunder. In the event Employee is not
the prevailing party, determined without regard to whether or not the action
results in a final judgment, Employee shall repay such reimbursements.
6. LIMITATION ON PAYMENTS. In the event that the payments and other
benefits provided for in this Agreement or otherwise payable to the Employee (i)
constitute
-3-
<PAGE>
"parachute payments" within the meaning of Section 280G of the
Internal Revenue Code of 1986, as amended (the "Code"), and (ii) but for this
Section 6, would be subject to the excise tax imposed by Section 4999 of the
Code (or any corresponding provisions of state income tax law), then the
Employee's benefits under Section 4(a) shall be either
(a) delivered in full, or
(b) delivered as to such lesser extent which would result
in no portion of such benefits being subject to excise tax under Section 4999 of
the Code,
whichever of the foregoing amounts, taking into account the applicable federal,
state and local income taxes and the excise tax imposed by Section 4999, results
in the receipt by the Employee on an after-tax-basis, of the greater amount of
benefits, notwithstanding that all or some portion of such benefits may be
taxable under Section 4999 of the Code. Unless the Company and the Employee
otherwise agree in writing, any determination required under this Section 6
shall be made in writing by the Company's independent public accountants (the
"ACCOUNTANTS"), whose determination shall be conclusive and binding upon the
Employee and the Company for all purposes. For purposes of making the
calculations required by this Section 6, the Accountants may make reasonable
assumptions and approximations concerning applicable taxes and may rely on
reasonable, good faith interpretations concerning the application of Sections
280G and 4999 of the Code. The Company and the Employee shall furnish to the
Accountants such information and documents as the Accountants may reasonably
request in order to make a determination under this Section. The Company shall
bear all costs the Accountants may reasonably incur in connection with any
calculations contemplated by this Section 6. In the event that subsection (a)
above applies, then Employee shall be responsible for any excise taxes imposed
with respect to such benefits. In the event that subsection (b) above applies,
then each benefit provided hereunder shall be proportionately reduced to the
extent necessary to avoid imposition of such excise taxes.
7. DEFINITION OF TERMS. The following terms used in this Agreement
shall have the following meanings:
(A) ANNUAL COMPENSATION. "ANNUAL COMPENSATION" means an amount
equal to (i) Employee's Company salary for the twelve months preceding the
Change of Control, and (ii) Employee's maximum target bonus for the year in
which the Change of Control occurs.
(B) CAUSE. "CAUSE" shall mean (i) any act of personal
dishonesty taken by the Employee in connection with his or her responsibilities
as an employee and intended to result in substantial personal enrichment of the
Employee, (ii) Employee's committing and being convicted of a felony, (iii) a
willful act by the Employee which constitutes gross misconduct and which is
injurious to the Company or an act of fraud by Employee against the Company, or
(iv) following delivery to the Employee of a written demand for performance from
the Company which describes the basis for the Company's belief that the Employee
has not substantially performed his or her duties, continued violations by the
Employee of the Employee's obligations to the Company which are demonstrably
willful and deliberate on the Employee's part.
-4-
<PAGE>
(C) CHANGE OF CONTROL. "CHANGE OF CONTROL" means the
occurrence of any of the following events:
(i) Any "PERSON" (as such term is used in Section
13(d) and 14(d) of the Securities Exchange Act of 1934, as amended) is or
becomes the "BENEFICIAL OWNER" (as defined in Rule 13d-3 under said Act),
directly or indirectly, of securities of the Company representing 50% or more of
the total voting power represented by the Company's then outstanding voting
securities; or
(ii) A change in the composition of the Board
occurring within a two-year period, as a result of which fewer than a majority
of the directors are Incumbent Directors. "INCUMBENT DIRECTORS" shall mean
directors who either (A) are directors of the Company elected at the annual
meeting of stockholders of the Company to be held on June 13, 1997, or (B) are
elected, or nominated for election, to the Board with the affirmative votes of
at least a majority of the Incumbent Directors at the time of such election or
nomination (but shall not include an individual whose election or nomination is
in connection with an actual or threatened proxy contest relating to the
election of directors to the Company); or
(iii) The stockholders of the Company approve a
merger or consolidation of the Company with any other corporation, other than a
merger or consolidation which would result in the voting securities of the
Company outstanding immediately prior thereto continuing to represent (either by
remaining outstanding or by being converted into voting securities of the
surviving entity) at least fifty percent (50%) of the total voting power
represented by the voting securities of the Company or such surviving entity
outstanding immediately after such merger or consolidation or the stockholders
of the Company approve a plan of complete liquidation of the Company or an
agreement for the sale or disposition by the Company of all or substantially all
the Company's assets.
(D) DISABILITY. "DISABILITY" shall mean that the Employee has
been unable to perform his or her Company duties as the result of his or her
incapacity due to physical or mental illness, and such inability, at least 26
weeks after its commencement, is determined to be total and permanent by a
physician selected by the Company or its insurers and acceptable to the Employee
or the Employee's legal representative (such Agreement as to acceptability not
to be unreasonably withheld). Termination resulting from Disability may only be
effected after at least 30 days' written notice by the Company of its intention
to terminate the Employee's employment. In the event that the Employee resumes
the performance of substantially all of his or her duties hereunder before the
termination of his or her employment becomes effective, the notice of intent to
terminate shall automatically be deemed to have been revoked.
(E) INVOLUNTARY TERMINATION. "INVOLUNTARY TERMINATION" shall
mean (i) without the Employee's express written consent, the significant
reduction of the Employee's duties, authority or responsibilities, relative to
the Employee's duties, authority or responsibilities as in effect immediately
prior to such reduction, or the assignment to Employee of such reduced duties,
authority or responsibilities; (ii) without the Employee's express written
consent, a substantial reduction, without good business reasons, of the
facilities and prerequisites (including office space and location) available to
the Employee immediately prior to such reduction; (iii) a
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<PAGE>
reduction by the Company in the base salary of the Employee as in effect
immediately prior to such reduction; (iv) a material reduction by the Company
in the kind or level of employee benefits, including bonuses, to which the
Employee was entitled immediately prior to such reduction with the result
that the Employee's overall benefits package is significantly reduced; (v)
the relocation of the Employee to a facility or a location more than thirty
(30) miles from the Employee's then present location, without the Employee's
express written consent; (vi) any purported termination of the Employee by
the Company which is not effected for Disability or for Cause, or any
purported termination for which the grounds relied upon are not valid; (vii)
the failure of the Company to obtain the assumption of this Agreement by any
successors contemplated in Section 8(a) below; or (viii) any act or set of
facts or circumstances which would, under California case law or statute,
constitute a constructive termination of the Employee.
(F) TERMINATION DATE. "TERMINATION DATE" shall mean (i) if
this Agreement is terminated by the Company for Disability, thirty (30) days
after notice of termination is given to the Employee (provided that the Employee
shall not have returned to the performance of the Employee's duties on a
full-time basis during such thirty (30)-day period), (ii) if the Employee's
employment is terminated by the Company for any other reason, the date on which
a notice of termination is given, provided that if within thirty (30) days after
the Company gives the Employee notice of termination, the Employee notifies the
Company that a dispute exists concerning the termination or the benefits due
pursuant to this Agreement, then the Termination Date shall be the date on which
such dispute is finally determined, either by mutual written agreement of the
parties, or by a final judgment, order or decree of a court of competent
jurisdiction (the time for appeal therefrom having expired and no appeal having
been perfected), or (iii) if the Agreement is terminated by the Employee, the
date on which the Employee delivers the notice of termination to the Company.
8. SUCCESSORS.
(A) COMPANY'S SUCCESSORS. Any successor to the Company
(whether direct or indirect and whether by purchase, merger, consolidation,
liquidation or otherwise) to all or substantially all of the Company's business
and/or assets shall assume the obligations under this Agreement and agree
expressly to perform the obligations under this Agreement in the same manner and
to the same extent as the Company would be required to perform such obligations
in the absence of a succession. For all purposes under this Agreement, the term
"COMPANY" shall include any successor to the Company's business and/or assets
which executes and delivers the assumption agreement described in this Section
8(a) or which becomes bound by the terms of this Agreement by operation of law.
(B) EMPLOYEE'S SUCCESSORS. The terms of this Agreement and all
rights of the Employee hereunder shall inure to the benefit of, and be
enforceable by, the Employee's personal or legal representatives, executors,
administrators, successors, heirs, distributees, devisees and legatees.
9. NOTICE.
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<PAGE>
(A) GENERAL. Notices and all other communications contemplated
by this Agreement shall be in writing and shall be deemed to have been duly
given when personally delivered or five (5) days after being mailed by U.S.
registered or certified mail, return receipt requested and postage prepaid. In
the case of the Employee, mailed notices shall be addressed to him or her at the
home address which he or she most recently communicated to the Company in
writing. In the case of the Company, mailed notices shall be addressed to its
corporate headquarters, and all notices shall be directed to the attention of
its Secretary.
(B) NOTICE OF TERMINATION. Any termination by the Company for
Cause or by the Employee as a result of a voluntary resignation and any
Involuntary Termination shall be communicated by a notice of termination to the
other party hereto given in accordance with Section 9(a) of this Agreement. Such
notice shall indicate the specific termination provision in this Agreement
relied upon, shall set forth in reasonable detail the facts and circumstances
claimed to provide a basis for termination under the provision so indicated, and
shall specify the termination date (which shall be not more than 30 days after
the giving of such notice). The failure by the Employee to include in the notice
any fact or circumstance which contributes to a showing of Involuntary
Termination shall not waive any right of the Employee hereunder or preclude the
Employee from asserting such fact or circumstance in enforcing his or her rights
hereunder.
10. MISCELLANEOUS PROVISIONS.
(A) NO DUTY TO MITIGATE. The Employee shall not be required to
mitigate the amount of any payment contemplated by this Agreement, nor shall any
such payment be reduced by any earnings that the Employee may receive from any
other source, subject to the termination provisions of Section 4(a)(1).
(B) WAIVER. No provision of this Agreement shall be modified,
waived or discharged unless the modification, waiver or discharge is agreed to
in writing and signed by the Employee and by an authorized officer of the
Company (other than the Employee). No waiver by either party of any breach of,
or of compliance with, any condition or provision of this Agreement by the other
party shall be considered a waiver of any other condition or provision or of the
same condition or provision at another time.
(C) WHOLE AGREEMENT. The Prior Severance Agreement is hereby
terminated, and this Agreement supersedes the Prior Severance Agreement in its
entirety. This Agreement represents the entire agreement between the Employee
and the Company with respect to the matters set forth herein. No agreements,
representations or understandings (whether oral or written and whether express
or implied) which are not expressly set forth in this Agreement have been made
or entered into by either party with respect to the subject matter hereof.
(D) CHOICE OF LAW. The validity, interpretation, construction
and performance of this Agreement shall be governed by the laws of the State of
California as applied to agreements entered into and performed within California
solely by residents of that state.
-7-
<PAGE>
(E) SEVERABILITY. The invalidity or unenforceability of any
provision or provisions of this Agreement shall not affect the validity or
enforceability of any other provision hereof, which shall remain in full force
and effect.
(F) WITHHOLDING. All payments made pursuant to this Agreement
will be subject to withholding of applicable income and employment taxes.
(G) COUNTERPARTS. This Agreement may be executed in
counterparts, each of which shall be deemed an original, but all of which
together will constitute one and the same instrument.
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<PAGE>
IN WITNESS WHEREOF, each of the parties has executed this Agreement, in
the case of the Company by its duly authorized officer, as of the date set forth
above.
COMPANY: SYNC RESEARCH, INC.
By: /s/ GREG REYES
--------------------
Title: BOARD CHAIRMAN
------------------
EMPLOYEE: /s/ WILLIAM K GUERRY
------------------------
Signature
WILLIAM K. GUERRY
------------------------
Please print name
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<PAGE>
EXHIBIT 21.1
Consent of Independent Auditors
We consent to the incorporation by reference in the Registration Statement
(Form S-8 No. 333-62289) pertaining to the Sync Research, Inc. Amended and
Restated 1991 Stock Plan, and the Sync Research, Inc. Amended and Restated
1995 Directors' Stock Option Plan and related Prospectus and in the
Registration Statement (Form S-8 No. 333-52947) pertaining to the Sync
Research, Inc. 1996 Non-Executive Stock Option Plan and related Prospectus in
the Registration Statement (Form S-8 No. 333-12315) pertaining to the 1994
Assumed TyLink Corporation Equity Incentive Plan and related Prospectus of
our report dated January 28, 2000, with respect to the consolidated financial
statements and schedule of Sync Research, Inc. included in the Annual Report
(Form 10-K) for the year ended December 31, 1999.
/s/ Ernst & Young LLP
Orange County, California
March 21, 2000
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