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SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )
Filed by the Registrant /X/
Filed by a party other than the Registrant / /
Check the appropriate box:
/ / Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Section 240.14a-12
SYNC RESEARCH, INC.
--------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
--------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/X/ No fee required.
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(1)
and 0-11.
(1) Title of each class of securities to which transaction applies:
------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
------------------------------------------------------------------------
(5) Total fee paid:
------------------------------------------------------------------------
/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
------------------------------------------------------------------------
(3) Filing Party:
------------------------------------------------------------------------
(4) Date Filed:
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[LOGO]
SYNC RESEARCH, INC.
GREGORIO REYES
CHAIRMAN OF THE BOARD
Dear Stockholder:
As most of you are aware, Sync has entered into a merger agreement with
Osicom Technologies, Inc. (which we will refer to as "Parent"), a publicly held
New Jersey corporation (Nasdaq:FIBR), to acquire a wholly-owned subsidiary of
Parent doing business as Entrada Networks (which we will refer to as "Entrada").
As a result, we have delayed our annual meeting of stockholders in order to
cover this very important matter. Our meeting is scheduled to be held at 10:00
a.m. local time, on Wednesday, August 30, 2000, at the Newport Beach Marriott
Suites, 500 Bayview Circle, Newport Beach, California.
In order to complete the merger, the holders of a majority of the shares of
Sync common stock and Series A Preferred Stock voting at the meeting must vote
in person or by proxy to authorize the issuance of shares of Sync common stock
under the merger agreement. As part of the merger, stockholders are also being
asked for approval to change Sync's name to "Entrada Networks, Inc." Only
stockholders who held shares of Sync common stock or Series A Preferred Stock at
the close of business on Tuesday, July 18, 2000 will be entitled to vote at the
annual meeting. YOUR BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED THE MERGER
AGREEMENT AND RECOMMENDS THAT YOU VOTE FOR THE MERGER PROPOSALS.
We believe that the combination of Sync and Entrada will allow Sync to
significantly improve its operating results. In addition, the merger represents
a significant business opportunity to enter into the emerging and rapidly
growing market for data storage systems (a.k.a. storage area networks or SANs).
Entrada has already implemented its strategy for the SAN market and has SAN
products currently in development.
The merger involves the issuance of Sync common stock to Parent in exchange
for all of the outstanding capital stock of Entrada and the Parent's
contribution of additional cash to the capital of Entrada prior to the merger.
The number of shares of Sync common stock to be issued to Parent will be equal
to between approximately 55% and 63% of the outstanding Sync common stock after
the merger. Immediately after the merger, Sync will own all of the outstanding
capital stock of Entrada and Parent will own approximately 56% to 64% of the
outstanding Sync common stock (includes shares owned by Parent on the record
date).
Details of the proposed merger, important information concerning Sync and
Entrada, and information concerning other important proposals to be considered
at the annual meeting appear in the accompanying proxy statement/prospectus. WE
URGE YOU TO CAREFULLY READ THE PROXY STATEMENT/ PROSPECTUS, INCLUDING THE
SECTION DESCRIBING RISK FACTORS THAT BEGINS ON PAGE 16.
We need your support to successfully complete this transaction. Your board
urges you to mark the enclosed proxy "FOR" the proposals and to sign and return
the proxy promptly.
All shareholders are cordially invited to attend our annual meeting in
person. However, whether or not you plan to attend the meeting, please complete,
sign and date the enclosed proxy and return it promptly to us in the enclosed
postage-prepaid envelope. It is very important that your shares be represented
and voted at the annual meeting. Your prompt cooperation is greatly appreciated.
Sincerely,
/s/ Gregorio Reyes
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSIONS HAS APPROVED OR DISAPPROVED OF THE SECURITIES TO BE ISSUED IN
CONNECTION WITH THE MERGER OR DETERMINED IF THIS PROXY STATEMENT/PROSPECTUS IS
ACCURATE OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
Dated: August 7, 2000
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SYNC RESEARCH, INC.
----------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD AUGUST 30, 2000
------------------------
To the Stockholders of Sync Research, Inc.:
We will hold an annual meeting of the stockholders of Sync Research, Inc. on
Wednesday, August 30, 2000, at 10:00 a.m. local time at the Newport Beach
Marriott Suites, 500 Bayview Circle, Newport Beach, California, to consider and
vote upon the following proposals:
1. To authorize the issuance of shares of Sync common stock under a
merger agreement between Sync and Osicom Technologies, Inc. (which we will
refer to as "Parent"). Through the merger, Sync will become the owner of all
of the outstanding common stock of a wholly-owned subsidiary of Parent doing
business as Entrada Networks (which we will refer to as "Entrada"), and the
Parent will receive a number of shares of Sync common stock equal to between
55% and 63% of the outstanding Sync common stock after the merger;
2. To approve, as part of the merger, the change of the name of Sync to
"Entrada Networks, Inc.";
3. To elect directors to serve for the ensuing year and until their
successors are elected and qualified;
4. To amend the 1995 Employee Stock Purchase Plan to increase the
number of shares reserved for issuance under the Plan by an additional
100,000 shares;
5. To ratify the appointment of Ernst & Young LLP as Sync's independent
auditors for the fiscal year ending December 31, 2000; and
6. To transact such other business as may properly come before the
meeting or any postponements or adjournments of it by the Sync board of
directors.
Only holders of record of shares of Sync common stock and Series A Preferred
Stock at the close of business on Tuesday, July 18, 2000, the record date for
the annual meeting, are entitled to notice of, and to vote at, the annual
meeting and any adjournments or postponements of it. We cannot complete the
merger unless the holders of a majority of the shares of Sync common stock and
Series A Preferred Stock voting at the meeting in person or by proxy vote to
authorize the issuance of shares of Sync common stock under the merger
agreement.
FOR MORE INFORMATION ABOUT THE MERGER, PLEASE REVIEW THE ACCOMPANYING PROXY
STATEMENT/ PROSPECTUS AND THE MERGER AGREEMENT ATTACHED AS ANNEX A.
Whether or not you plan to attend the annual meeting, please complete, sign
and date the enclosed proxy and return it promptly in the enclosed postage-paid
envelope.
By Order of the Board of Directors,
/s/ William K. Guerry
William K. Guerry
SECRETARY
Irvine, California
August 7, 2000
<PAGE>
REFERENCES TO ADDITIONAL INFORMATION
This proxy statement/prospectus incorporates important business and
financial information about Sync from documents that are not included in or
delivered with this proxy statement/prospectus. This information is available to
you without charge upon your written or oral request. You can obtain documents
incorporated by reference in this proxy statement/prospectus by requesting them
in writing or by telephone from Sync at the following address and telephone
number:
Ms. Gloria Corken
Investor Relations
Sync Research, Inc.
12 Morgan
Irvine, CA 92618
Telephone: (949) 588-2070
If you would like to request documents, please do so by August 18, 2000 in
order to receive them before the Sync annual meeting. See "Where You Can Find
More Information" (page 84).
<PAGE>
TABLE OF CONTENTS
<TABLE>
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PAGE
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QUESTIONS AND ANSWERS ABOUT THE MERGER...................... 1
SUMMARY..................................................... 4
The Companies............................................... 4
General..................................................... 4
The Sync Annual Meeting..................................... 6
The Merger And The Merger Agreement......................... 7
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA AND SUMMARY
UNAUDITED PRO FORMA INFORMATION........................... 9
COMPARATIVE PER SHARE DATA.................................. 14
COMPARATIVE STOCK PRICE DATA AND DIVIDEND HISTORY........... 15
RISK FACTORS................................................ 16
Risks Related to the Merger................................. 16
Risks Related to the Combined Companies' Business........... 18
Risks Related to the Combined Companies' Industry........... 23
THE SYNC ANNUAL MEETING..................................... 27
Date, Time and Place........................................ 27
Purpose of Annual Meeting................................... 27
Record Date; Voting Power; Quorum........................... 27
Votes Required.............................................. 28
Voting By Sync Directors And Executive Officers and
Parent.................................................... 28
Voting of Proxies........................................... 29
Revocability of Proxies..................................... 29
Solicitation of Proxies..................................... 29
THE MERGER.................................................. 30
Ownership of Sync and Entrada Following the Merger; Stock
Options................................................... 30
Background to the Merger.................................... 30
Reasons for the Merger and Board of Directors
Recommendation............................................ 32
Fairness Opinion of Financial Advisor....................... 34
Private Placement Financing; Bring-Down of Alliant
Opinion................................................... 38
Interests of Sync Directors and Management in the Merger.... 39
Accounting Treatment........................................ 40
Appraisal Rights............................................ 40
Form of the Merger; Name Change............................. 40
Merger Consideration........................................ 40
Conversion of Shares........................................ 40
Effective Time of the Merger................................ 40
Stock Exchange Listing of Sync Common Stock................. 41
Material United States Federal Income Tax Consequences of
the Merger................................................ 41
</TABLE>
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<TABLE>
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Regulatory Matters.......................................... 41
Resale of Sync Common Stock................................. 41
THE MERGER AGREEMENT........................................ 42
Conditions to the Completion of the Merger.................. 42
No Solicitation............................................. 43
Termination................................................. 43
Conduct of Entrada's Business Prior to the Merger........... 44
Conduct of Sync's Business Prior to the Merger.............. 46
Amendment; Waiver........................................... 48
Fees and Expenses........................................... 48
Representations and Warranties.............................. 48
COMPARATIVE STOCK PRICE DATA AND DIVIDEND HISTORY........... 50
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL
INFORMATION............................................... 51
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET.... 52
SYNC RESEARCH, INC. NOTES TO UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED BALANCE SHEET................................ 53
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF
OPERATIONS................................................ 55
SYNC RESEARCH, INC. NOTES TO UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED STATEMENT OF OPERATIONS...................... 57
BUSINESS OF ENTRADA......................................... 58
Description of Business..................................... 58
Entrada's Strategic Plan.................................... 58
Markets for Entrada's Products.............................. 58
Entrada's Product Development Approach...................... 59
Products.................................................... 60
Sales and Marketing......................................... 61
Customers and Markets....................................... 61
Customer Service and Support................................ 62
Research and Development.................................... 62
Manufacturing and Quality................................... 63
Availability of Raw Materials............................... 63
Patents, Trademarks and Licenses............................ 63
Seasonality................................................. 64
Working Capital Practices................................... 64
Backlog..................................................... 64
Competition................................................. 64
Environmental Compliance.................................... 65
Employees................................................... 65
</TABLE>
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<TABLE>
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ENTRADA MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS....................... 66
Results of Operations: Comparison of the Three Months Ended
April 30, 2000 and April 30, 1999......................... 66
Results of Operations: Comparison of the Years Ended
January 31, 2000 and January 31, 1999..................... 67
Results of Operations: Comparison of the Years Ended
January 31, 1999 and January 31, 1998..................... 67
Liquidity and Capital Resources............................. 68
Year 2000 Compliance........................................ 70
Effects of Inflation and Currency Exchange Rate............. 70
Impact of Recent Accounting Pronouncements.................. 70
EXPERTS..................................................... 72
LEGAL MATTERS............................................... 72
OTHER ANNUAL MEETING PROPOSALS.............................. 73
Proposal No. 3: Election Of Directors....................... 73
Potential New Directors..................................... 75
Proposal No. 4: Approval of Amendment to the 1995 Employee
Stock Purchase Plan....................................... 76
Proposal No. 5: Approval of Independent Auditors............ 81
Possible Stockholder Proposal............................... 81
OTHER MATTERS............................................... 81
DEADLINE FOR RECEIPT OF FUTURE STOCKHOLDER PROPOSALS........ 81
INFORMATION CONCERNING SYNC................................. 82
DOCUMENTS INCORPORATED BY REFERENCE IN THIS PROXY STATEMENT/
PROSPECTUS................................................ 83
TRADEMARKS.................................................. 83
WHERE YOU CAN FIND MORE INFORMATION......................... 84
STATEMENTS REGARDING FORWARD-LOOKING INFORMATION............ 85
INDEX TO ENTRADA FINANCIAL STATEMENTS....................... F-1
Report of Independent Certified Public Accountants........ F-2
Balance Sheets............................................ F-3
Statements of Operations.................................. F-4
Statements of Stockholder's Equity (Deficit).............. F-5
Statements of Cash Flows.................................. F-6
Notes to Financial Statements............................. F-7
Balance Sheets............................................ F-18
Statement of Operations................................... F-19
Statement of Stockholder's Equity (Deficit)............... F-20
Statement of Cash Flows................................... F-21
Notes to Financial Statements............................. F-22
ANNEX A AGREEMENT AND PLAN OF MERGER
ANNEX B OPINION OF FINANCIAL ADVISOR TO SYNC
ANNEX C BRING-DOWN OPINION OF FINANCIAL ADVISOR TO SYNC
</TABLE>
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<PAGE>
QUESTIONS AND ANSWERS ABOUT THE MERGER
Q. WHY IS SYNC PROPOSING TO ENTER INTO THIS MERGER?
A. We believe that the combination of Sync and Entrada will allow Sync to
significantly improve its operating results. In addition, the merger
represents a significant business opportunity to enter into the emerging and
rapidly growing market for data storage systems (known as Storage Area
Networks or SANs). Entrada has already begun the implementation of a
strategy for the SAN market and has SAN products currently in development.
Q. WHAT WILL THE PARENT OF ENTRADA RECEIVE IN THE MERGER?
A. In the merger Parent, which is the sole owner of Entrada, will receive a
number of shares of Sync common stock equal to between approximately 55% and
63% of the outstanding Sync common stock after the merger. The number of
shares to be issued to Parent in exchange for the all of the outstanding
common stock of Entrada will be equal to the number of outstanding shares of
Sync common stock immediately prior to the merger. The Parent will also be
issued an additional 1 million to 3 million shares of Sync common stock
depending on the amount of cash the Parent contributes to the capital of
Entrada prior to the merger. The number of additional shares will be
calculated based on a purchase price per share equal to the average closing
price per share of Sync's common stock for the thirty (30) trading days
immediately preceding the merger, subject to a minimum price of $3.30 and a
maximum price of $3.811. On the record date, the Parent owned 93,900 shares
of Sync common stock which it acquired in the open market since it entered
into the merger agreement.
Q. HOW WILL THE MERGER BE ACCOMPLISHED, AND WHAT WILL BE ITS IMPACT ON THE
COMPANIES?
A. The respective boards of directors of Sync, Entrada and Parent have each
approved the merger. If the Sync stockholders authorize the issuance of Sync
common stock under the merger agreement at the annual meeting, then Entrada
will merge with a wholly-owned subsidiary of Sync, with Entrada remaining as
the surviving entity. Upon completion of the merger, Sync will own 100% of
Entrada, and Parent will own between approximately 56% and 64% of Sync
(includes the shares of common stock of Sync owned by Parent on the record
date), together with any additional shares of Sync common stock which Parent
may acquire in open market transactions between the record date and the
merger. In addition, Sync will change its name to Entrada Networks, Inc.
upon completion of the merger. The Parent has the right, effective thirty
(30) days after the merger, to distribute to the shareholders of Parent, or
otherwise transfer, all or a portion of the shares of Sync common stock
Parent receives in the merger. Throughout this proxy statement/prospectus,
the term "the combined companies" refers to Sync and Entrada following the
merger.
On the record date, Parent owned approximately 2.2% of the Sync common stock
entitled to vote at the annual meeting. The Parent has advised Sync that it
intends to vote the Sync common stock owned by it "for" the merger
proposals.
Q. WILL SYNC STOCKHOLDERS RECEIVE ANY SHARES AS A RESULT OF THE MERGER?
A. No. Sync stockholders will continue to hold the Sync shares they currently
own.
Q. WHO WILL MANAGE SYNC FOLLOWING THE MERGER?
A. The President and Chief Executive Officer of Sync following the merger will
be Dr. Kanwar J.S. Chadha, who is currently the President and Chief
Executive Officer of Entrada. William K. Guerry, currently the Chief
Executive Officer, President and Chief Financial Officer of Sync, will be
the Chief Operating Officer, Chief Financial Officer and Vice
President-Finance and Administration of Sync following the merger. Anand
Mehta, currently the Chief Technology Officer and Vice President-Engineering
of Entrada, will be the Chief Technology Officer and Vice President-
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Engineering of Sync following the merger. Arthur Trakas, currently the
Executive Vice President-Sales and Marketing of Parent and Entrada, will be
the Executive Vice President-Sales of Sync following the merger. Assuming
that at the annual meeting the Sync stockholders authorize the issuance of
Sync common stock under the merger agreement and elect the slate of
directors that the Sync board of directors has nominated, Mr. Guerry and
William J. Schroeder will step down as directors of Sync and the board of
directors of Sync following the merger will consist of Gregorio Reyes,
currently the Chairman of Sync's board of directors, Dr. Chadha, Charles A.
Haggerty, currently a director of Sync, Leonard N. Hecht, currently a
director of Parent, and Rohit Phansalkar, currently a director, Chairman of
the Board and Chief Executive Officer of Parent. Mr. Phansalker is a former
partner of Andersen, Weinroth & Co., L.P., affiliates of which own all of
the outstanding Series A Preferred Stock of Sync and are stockholders of
Parent. For more information, see "Other Annual Meeting Proposals--Proposal
No. 3: Election Of Directors."
Q: WHEN DO YOU EXPECT THE MERGER TO BE COMPLETED?
A. We expect to complete the merger as quickly as possible after the annual
meeting.
Q: WHAT ARE THE TAX CONSEQUENCES OF THE MERGER TO SYNC STOCKHOLDERS?
A. The merger will not have any tax consequences for Sync stockholders. For more
information, see "Material United States Federal Income Tax Consequences of
the Merger."
Q: WHEN AND WHERE IS THE SYNC STOCKHOLDER MEETING?
A. The annual meeting will take place at 10:00 a.m. local time, on Wednesday,
August 30, 2000, at the Newport Beach Marriott Suites, 500 Bayview Circle,
Newport Beach, California. You may attend the annual meeting and vote your
shares in person, rather than signing and mailing your proxy.
Q. WHAT DO I NEED TO DO NOW?
A. After carefully reading and considering the information contained in this
proxy statement/ prospectus, please complete and sign your proxy and return
it in the enclosed return envelope as soon as possible, so that your shares
may be represented at the annual meeting. If you sign and send in your proxy
and do not indicate how you want to vote, we will count your proxy as a vote
in favor of the merger proposals. In order to assure that your vote is
obtained, please vote your proxy as instructed on your proxy card even if
you currently plan to attend the annual meeting in person.
Q. DOES SYNC'S BOARD RECOMMEND VOTING IN FAVOR OF THE MERGER?
A. Yes. After careful consideration, the board of directors of Sync unanimously
recommends voting in favor of the merger proposals, authorizing the issuance
of shares of Sync common stock under the merger agreement and changing the
name of Sync to Entrada Networks, Inc.
Q. ARE THERE RISKS I SHOULD CONSIDER IN DECIDING WHETHER TO VOTE FOR THE
MERGER?
A. Yes. There are risks and uncertainties because Sync and Entrada are in a
highly competitive and rapidly evolving industry. In evaluating the merger,
you should carefully consider these and other risk factors discussed in the
section entitled "Risk Factors" beginning on page 16 of this proxy
statement/prospectus.
Q. CAN I CHANGE MY VOTE AFTER I HAVE MAILED MY SIGNED PROXY CARD?
A. Yes. You can change your vote at any time before your proxy is voted at the
annual meeting. You can do this three different ways. First, you can send a
written notice stating that you would like to revoke your proxy. Second, you
can complete and submit a new proxy card. Sync stockholders choosing either
of these options should send their revocation letter or new proxy card to
Sync's Investor Relations representative at the address provided below. If
you have instructed a broker to vote your shares, you must follow the
directions provided by your broker to change those
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instructions. Third, if you are a holder of record, you may change your vote
by attending the annual meeting and actually voting in person. Simply
attending the meeting, however, will not revoke your proxy.
Q: IF MY SYNC SHARES ARE HELD IN "STREET NAME" BY MY BROKER, WILL MY BROKER
VOTE MY SHARES FOR ME?
A. Your broker will vote your Sync shares only if you provide instructions on
how to vote. You should follow the directions provided by your broker
regarding how to instruct your broker to vote your shares. Without
instructions, your shares will not be voted, unless you appear in person at
the annual meeting with a legal, valid proxy from your broker.
Q: WHO CAN HELP ANSWER MY QUESTIONS?
A: If you have any questions about the merger or if you need additional copies
of this proxy statement/prospectus or the enclosed proxy, you should
contact:
Ms. Gloria Corken
Investor Relations
Sync Research, Inc.
12 Morgan
Irvine, CA 92618
Telephone: (949) 588-2070
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SUMMARY
THIS SUMMARY HIGHLIGHTS SELECTED INFORMATION FROM THIS PROXY
STATEMENT/PROSPECTUS AND DOES NOT CONTAIN ALL OF THE INFORMATION THAT IS
IMPORTANT TO YOU. TO UNDERSTAND THE MERGER FULLY AND FOR A MORE COMPLETE
DESCRIPTION OF THE LEGAL TERMS OF THE MERGER, YOU SHOULD CAREFULLY READ THIS
ENTIRE PROXY STATEMENT/ PROSPECTUS AND THE OTHER DOCUMENTS TO WHICH WE HAVE
REFERRED YOU. SEE "WHERE YOU CAN FIND MORE INFORMATION" ON PAGE 86. WE HAVE
INCLUDED PAGE REFERENCES PARENTHETICALLY TO DIRECT YOU TO A MORE COMPLETE
DESCRIPTION OF THE TOPICS PRESENTED IN THIS SUMMARY.
THE COMPANIES
SYNC RESEARCH, INC. Sync develops, manufactures, markets, supports and
provides wide-area network 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. Sync
follows a sales strategy relying primarily on a direct sales force and
leveraging resellers, distributors and carriers as delivery channels for its
products.
As used in this proxy statement/prospectus, the term "Sync" refers to Sync
Research, Inc. and its subsidiaries, unless the context otherwise requires. Sync
was incorporated in California in September 1981 and was reincorporated in
Delaware in September 1995. Sync's principal executive offices are located at 12
Morgan, Irvine, California 92618 and its telephone number is (949) 588-2070.
OSICOM TECHNOLOGIES, INC. (DOING BUSINESS AS ENTRADA NETWORKS), a Delaware
corporation and a wholly-owned subsidiary of Osicom Technologies, Inc., a
publicly-held New Jersey Corporation. Entrada, based in Annapolis Junction,
Maryland, designs, manufactures and markets products that provide access to and
enhance the performance of data and telecommunications networks, and is
currently developing products that provide connectivity for storage networks.
Many of Entrada's products are incorporated into the remote access and other
server products of original equipment manufacturers ("OEMs"). In addition,
certain of Entrada's products are deployed by telecommunications network
operators, applications service providers, internet service providers, and the
operators of corporate local area and wide area networks for the purpose of
providing access to and transport within their networks.
As used in this proxy statement/prospectus, the term "Entrada" refers to
Osicom Technologies, Inc., a Delaware corporation, unless the context otherwise
requires. Entrada was incorporated in Delaware in 1972. Entrada's principal
executive offices are located at 9020 Junction Drive, Annapolis Junction,
Maryland 20701 and its telephone number is (301) 317-7710.
As used in this proxy statement/prospectus, the term "the combined
companies" refers to both Sync and Entrada following the completion of the
merger.
GENERAL
SYNC'S BOARD RECOMMENDATION TO STOCKHOLDERS (PAGE 33)
The Sync board of directors believes that the merger is fair to you and in
your best interest and unanimously recommends that you vote "for" the proposal
to authorize the issuance of Sync common stock under the merger agreement and
the proposal to approve Sync's name change to Entrada Networks, Inc. for
completion of the merger. To review the background and reasons for the merger in
greater detail, as well as certain risks related to the merger, see pages 16 to
26 and 30 to 33.
OWNERSHIP OF SYNC AND ENTRADA FOLLOWING THE MERGER; STOCK OPTIONS (PAGE 30)
Immediately following the merger, (i) Sync will own 100% of Entrada, and
(ii) Parent will own between approximately 56% and 64% of Sync (includes the
shares of Sync common stock owned by
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Parent on the record date), together with any additional shares of Sync common
stock which Parent may acquire between the record date and the date of the
merger. The Parent has the right to have Sync distribute to the shareholders of
Parent all or a portion of the shares of Sync common stock Parent is entitled to
receive in the merger. In addition, certain employees of Entrada will be granted
options to purchase shares of Sync's common stock which, in the aggregate, shall
equal the number of shares of Sync common stock issuable upon the exercise of
all of the outstanding Sync options at the time of the merger.
REASONS FOR THE MERGER (PAGE 32)
We believe that the combination of Sync and Entrada will allow Sync to
significantly improve its operating results. In addition the merger represents a
significant business opportunity to enter into the emerging and rapidly growing
market for data storage systems (known as Storage Area Networks or SANs).
Entrada has already begun the implementation of a strategy for the SAN market
and has SAN products currently in development.
The merger will strengthen the capabilities of Sync and Entrada to compete
in the very competitive networking market. The combined companies will be better
able to (i) provide customers with a more comprehensive set of networking
solutions, and (ii) develop products for new high growth technologies and
markets, including storage networking. The Sync board of directors believes that
the combination with Entrada will assist Sync in strengthening its ability to
effectively compete in the market and improve the overall financial results of
Sync. The Sync board of directors also believes that the technologies, product
lines and fundamental business and operating strategies of Sync and Entrada are
complementary and consistent, and that Sync and Entrada together can provide a
greater range of products and superior market coverage compared to each as a
stand-alone business. In addition, the Sync board of directors believes that a
combination of the two companies provides greater potential for enhanced
stockholder value than does the continuation of Sync's operations in its present
form or any of the alternative business strategies that it considered.
APPRAISAL RIGHTS (PAGE 40)
Holders of Sync common stock and Series A Preferred Stock are not entitled
to dissenters' appraisal rights under Delaware law in connection with the
merger.
INTERESTS OF SYNC DIRECTORS AND MANAGEMENT IN THE MERGER (PAGE 39)
In considering the Sync board's recommendation that you vote in favor of the
merger proposals, you should be aware that some officers and directors of Sync
have interests in the merger that are different from, or in addition to, the
interests of Sync stockholders. Please refer to page 39 for more information.
MATERIAL FEDERAL INCOME TAX CONSEQUENCES (PAGE 41)
For United States federal income tax purposes, regardless of whether the
merger will be treated as a reorganization within the meaning of Section 368(a)
of the Internal Revenue Code, no gain or loss will be recognized by Sync or the
Sync stockholders as a result of the merger.
FAIRNESS OPINION OF FINANCIAL ADVISOR (PAGE 34)
In deciding to approve the issuance of shares of Sync common stock under the
merger, the Sync board of directors considered the opinion, as of the date of
the merger agreement, of its financial advisor, Alliant Partners, as to the
fairness of the exchange ratio in the merger to Sync stockholders from a
financial point of view. This opinion is attached as Annex B to this proxy
statement/prospectus and sets forth assumptions made, matters considered and
limitations on the review undertaken in
5
<PAGE>
connection with the opinion. ALLIANT PARTNERS UPDATED THEIR OPINION AS OF
AUGUST 2, 2000 AND SUCH BRINGDOWN OPINION IS ATTACHED AS ANNEX C TO THIS PROXY
STATEMENT/PROSPECTUS. WE ENCOURAGE STOCKHOLDERS TO READ THESE OPINIONS
CAREFULLY. THESE OPINIONS ARE DIRECTED TO THE BOARD OF DIRECTORS AND ARE NOT A
RECOMMENDATION TO STOCKHOLDERS WITH RESPECT TO ANY MATTER RELATING TO THE
MERGER. THE OPINIONS SPEAK ONLY AS OF THEIR DATE OF ISSUANCE AND THE FINANCIAL
ADVISOR OF SYNC IS UNDER NO OBLIGATION TO CONFIRM ITS OPINIONS AS OF A LATER
DATE. FURTHER, THE BOARD OF DIRECTORS MAY NOT NECESSARILY REQUEST THAT ITS
FINANCIAL ADVISOR CONFIRM ITS OPINIONS AS OF A LATER DATE.
THE SYNC ANNUAL MEETING (PAGE 27)
The Sync annual meeting will be held at the Newport Beach Marriott Suites,
500 Bayview Circle, Newport Beach, California, at 10:00 a.m., local time, on
Wednesday, August 30, 2000. At the Sync annual meeting, Sync stockholders will
be asked to adopt the merger proposals, as well as to vote upon other proposals
of the board of directors as described in this proxy statement/prospectus. This
proxy statement/prospectus is being furnished to you in connection with the
solicitation by the Sync board of directors of proxies for use in voting at the
annual meeting.
RECORD DATE; VOTING POWER
You are entitled to vote at the annual meeting if you owned shares of Sync
as of the close of business on Tuesday, July 18, 2000, which is the record date.
On the record date, there were 4,237,136 shares of Sync common stock and
Series A Preferred Stock entitled to vote at the Sync annual meeting. The number
of shares entitled to vote does not include 68,000 shares of common stock held
by Sync, and which shares Sync intends to retire prior to the merger. Sync
stockholders will have one vote for each share of Sync common stock and
Series A Preferred Stock they owned on the record date.
VOTES REQUIRED
In order to consummate the merger, a majority of the shares of Sync common
stock and Series A Preferred Stock present in person or by proxy at the meeting,
voting as a group, must vote in favor of the issuance of shares of Sync common
stock. Approval of the name change requires the affirmative vote of at least a
majority of the shares of Sync common stock and Series A Preferred Stock
entitled to vote at the annual meeting. A plurality of votes cast is required to
elect directors. Approval of the amendment to the 1995 Employee Stock Purchase
Plan, as well as approval of Ernst & Young LLP as Sync's independent auditors,
require the affirmative vote of at least a majority of the shares of Sync common
stock and Series A Preferred Stock present in person or by proxy at the meeting.
VOTING BY DIRECTORS AND EXECUTIVE OFFICERS; PARENT
On the record date, directors and executive officers of Sync and their
affiliates owned and were entitled to vote 117,167 shares of Sync common stock,
or approximately 2.8% of the shares of Sync stock entitled to vote at the annual
meeting. The directors and executive officers of Sync have indicated that they
intend to vote the Sync common stock owned by them "for" adoption of the merger
proposals.
On the record date, Parent owned and was entitled to vote 93,900 shares of
Sync common stock, or approximately 2.2% of the shares of Sync stock entitled to
vote at the annual meeting. The Parent has indicated that it intends to vote its
shares of Sync common stock "for" adoption of the merger proposals.
On the record date, all of the outstanding Series A Preferred Stock of Sync,
or approximately 16.5% of the shares of Sync stock entitled to vote at the
annual meeting, was held by Entrada Holdings
6
<PAGE>
LLC ("Entrada Holdings"). Entrada Holdings is an affiliate of Andersen,
Weinroth & Co., L.P., of which Rohit Phansalkar, the Chairman of the Board,
Chief Executive Officer and a director of Parent, is a former partner. An
affiliate of Andersen, Weinroth & Co., L.P. is also a shareholder of Parent.
Entrada Holdings has indicated that it intends to vote its shares of Sync Series
A Preferred Stock "for" adoption of the merger proposals.
THE MERGER AND THE MERGER AGREEMENT
THE MERGER AGREEMENT IS ATTACHED TO THIS PROXY STATEMENT/PROSPECTUS AS ANNEX
A. WE ENCOURAGE YOU TO READ THE MERGER AGREEMENT CAREFULLY. IT IS THE PRINCIPAL
DOCUMENT GOVERNING THE MERGER.
MERGER CONSIDERATION (PAGE 40)
At the closing of the merger, Sync will issue shares of Sync common stock to
the Parent in exchange for all of the outstanding capital stock of Entrada and
the Parent's contribution of additional cash to the capital of Entrada prior to
the merger. The number of shares to be issued to Parent in exchange for the all
of the outstanding common stock of Entrada will be equal to the number of
outstanding shares of Sync common stock immediately prior to the merger. The
Parent will also be issued an additional 1 million to 3 million shares of Sync
common stock depending on the amount of cash the Parent contributes to the
capital of Entrada prior to the merger. The number of additional shares will be
calculated based on a purchase price per share equal to the average closing
price per share of Sync's common stock for the thirty (30) trading days
immediately preceding the merger, subject to a minimum price of $3.30 and a
maximum price of $3.811. The exchange ratio and purchase price were determined
through arm's-length negotiations between Sync and Parent.
CONDITIONS TO THE COMPLETION OF THE MERGER (PAGE 42)
The respective obligations of Sync and Parent to effect the merger are
subject to the satisfaction of certain conditions, including, but not limited
to, obtaining requisite Sync stockholder and regulatory approvals, the approval
for quotation on the Nasdaq National Market of the Sync common stock to be
issued pursuant to the merger, the absence of any injunction prohibiting
consummation of the merger, and the accuracy of the representations and
warranties contained in the merger agreement.
Each of the conditions to the merger may be waived by the company entitled
to assert the condition.
TERMINATION OF THE MERGER AGREEMENT AND TERMINATION FEE (PAGE 43)
Sync and Parent can mutually agree to terminate the merger agreement without
completing the merger. Either Sync or Parent can terminate the merger agreement
by written notice if the merger is not completed by September 15, 2000, or if
any court or governmental authority prohibits the transactions contemplated by
the merger agreement and such prohibition is final and nonappealable.
Additionally, if Sync receives a non-solicited proposal from another company to
acquire or merge with Sync that Sync's board of directors considers to be
superior to the proposed transaction with Entrada, then Sync may terminate the
merger agreement upon agreement to pay Parent a termination fee of $1,000,000.
Likewise, if Parent receives a non-solicited proposal from another company to
acquire or merge with Entrada that Parent's board of directors considers to be
superior to the proposed merger with Sync, then Parent may terminate the merger
agreement upon agreement to pay Sync a termination fee of $1,000,000. If the
stockholders of Sync vote not to authorize the issuance of Sync common stock for
completion of the merger, then Sync will be required to pay Parent a fee of
$250,000 within thirty (30) days of such stockholder vote.
7
<PAGE>
WHEN THE MERGER TAKES EFFECT (PAGE 40)
The merger will become effective when all necessary documentation has been
filed with the Delaware Secretary of State. Such documentation will be filed
promptly upon satisfaction or waiver of each of the conditions provided in the
merger agreement.
CONVERSION OF SHARES (PAGE 40)
After completion of the merger, Parent will no longer have any rights as a
stockholder of Entrada. Once the merger is effective, Parent will surrender its
Entrada stock certificates and in turn the Parent and/or shareholders of the
Parent will receive Sync stock certificates from the transfer agent.
REGULATORY MATTERS (PAGE 41)
Certain aspects of the merger will require notifications to, and/or
approvals from, certain United States authorities. Sync and Entrada believe that
all material notifications, filings and approvals have been made or obtained, or
will be made or obtained prior to the effective date of the merger, as the case
may be. See "The Merger Agreement--Conditions to the Completion of the Merger."
ACCOUNTING TREATMENT (PAGE 40)
The merger will be accounted for as an acquisition of Sync by Entrada under
the "purchase" method of accounting in accordance with generally accepted
accounting principles.
RESALE OF SYNC COMMON STOCK (PAGE 41)
All shares of Sync common stock received by Parent in the merger will be
freely transferable, except that Parent shall be deemed to be an "affiliate" (as
such term is defined under the Securities Act of 1933) of Sync and, accordingly,
such shares may be resold by Parent only in transactions permitted by the resale
provisions of Rules 144 promulgated under the Securities Act or as otherwise
permitted under the Securities Act.
8
<PAGE>
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA
AND SUMMARY UNAUDITED PRO FORMA INFORMATION
The following selected historical financial data of Sync for the three years
ended December 31, 1999, 1998 and 1997 and as of December 31, 1999 and 1998 has
been derived from the audited historical financial statements incorporated by
reference herein and should be read in conjunction with such consolidated
financial statements and the notes thereto and Management's Discussion and
Analysis of Financial Condition and Results of Operations. The statement of
operations data for the years ended December 31, 1996 and 1995 have been derived
from audited financial statements not included in this proxy
statement/prospectus. The selected financial data of Sync for the three months
ended March 31, 2000 and 1999 has been derived from Sync's unaudited financial
statements which have been incorporated by reference from Sync's Quarterly
Report on Form 10-Q for the quarter ended March 31, 2000 filed with the
Securities and Exchange Commission. These interim operating results are not
necessarily indicative of the results that may be expected for the entire fiscal
year.
The following selected historical financial data of Entrada for the three
years ended January 31, 2000, 1999 and 1998 and as of January 31, 2000, 1999 and
1998 has been derived from the audited historical financial statements included
elsewhere herein and should be read in conjunction with such consolidated
financial statements and the notes thereto and Management's Discussion and
Analysis of Financial Condition and Results of Operations. The selected
financial data of Entrada for the three months ended April 30, 2000 and 1999 and
as of April 30, 2000 has been derived from the unaudited financial statements
included elsewhere herein and should be read in conjunction with such
consolidated financial statements and the notes thereto and Management's
Discussion and Analysis of Financial Condition and Results of Operations. The
statement of operations data for the periods up to January 31, 1997 have been
derived from audited financial statements not included in this proxy
statement/prospectus.
The pro forma information is presented for illustrative purposes only and is
not necessarily indicative of the operating results or financial position that
would have occurred if the merger had been consummated, nor is it necessarily
indicative of future operating results or financial position.
9
<PAGE>
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA--SYNC
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FOR THE THREE
MONTHS ENDED
MARCH 31, YEARS ENDED DECEMBER 31,
------------------- ----------------------------------------------------
2000 1999 1999 1998 1997 1996 1995
-------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net revenues....................... $ 3,150 $ 5,106 $18,152 $ 24,702 $ 23,256 $ 36,346 $34,933
Cost of sales...................... 1,916 2,851 9,905 15,850 14,724 19,995 17,584
------- ------- ------- -------- -------- -------- -------
Gross profit....................... 1,234 2,255 8,247 8,852 8,532 16,351 17,349
Operating expenses:
Research and development......... 1,062 1,715 5,503 7,420 7,195 7,687 5,636
Selling and marketing............ 859 1,796 5,136 11,851 14,318 14,484 11,248
General and administrative....... 551 614 2,284 3,048 3,741 5,795 2,871
Non-recurring charges............ -- -- -- 2,852 1,241 -- --
------- ------- ------- -------- -------- -------- -------
Total operating expenses......... 2,472 4,125 12,923 25,171 26,495 27,966 19,755
------- ------- ------- -------- -------- -------- -------
Operating loss..................... (1,238) (1,870) (4,676) (16,319) (17,963) (11,615) (2,406)
Interest income, net............... 114 135 408 875 1,455 2,184 461
------- ------- ------- -------- -------- -------- -------
Loss before income taxes........... (1,124) (1,735) (4,268) (15,444) (16,508) (9,431) (1,945)
Provision for income taxes......... 1 -- 6 2 -- 2 45
------- ------- ------- -------- -------- -------- -------
Net loss........................... $(1,125) $(1,735) $(4,274) $(15,446) $(16,508) $ (9,433) $(1,990)
======= ======= ======= ======== ======== ======== =======
Basic and diluted net loss per
share............................ $ (0.32) $ (0.50) $ (1.22) $ (4.44) $ (4.81) $ (3.04) $ (2.31)
======= ======= ======= ======== ======== ======== =======
Shares used in computing net loss
per share........................ 3,516 3,505 3,493 3,479 3,434 3,258 1,364
======= ======= ======= ======== ======== ======== =======
</TABLE>
<TABLE>
<CAPTION>
AS OF
MARCH
31, AS OF DECEMBER 31,
-------- ----------------------------------------------------
2000 1999 1998 1997 1996 1995
-------- -------- -------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................. $ 7,696 $ 8,632 $ 14,135 $ 21,734 $ 35,874 $50,633
Working capital........................... 10,665 11,611 14,337 28,718 44,336 58,260
Total assets.............................. 16,839 19,197 26,791 38,495 55,692 66,672
Capitalized lease obligations, less
current maturities...................... 9 7 60 111 146 398
Mandatorily redeemable preferred stock.... -- -- -- -- -- 5,591
Total stockholders' equity................ 12,225 13,291 17,571 32,818 48,803 54,862
</TABLE>
10
<PAGE>
SELECTED HISTORICAL FINANCIAL DATA--ENTRADA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
APRIL 30, YEARS ENDED JANUARY 31,
---------------------- ------------------------------
2000 1999 2000 1999 1998
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net revenues................................ $ 3,710 $ 6,418 $ 28,771 $ 29,007 $30,624
Cost of sales............................... 5,398 3,891 17,498 16,043 17,061
------- ------- -------- -------- -------
Gross profit................................ (1,688) 2,527 11,273 12,964 13,563
Operating expenses:
Research and development.................. 1,650 1,250 6,223 5,503 3,546
Selling and marketing..................... 1,034 1,134 5,647 8,329 8,974
General and administrative................ 530 696 2,177 2,270 3,611
Non-recurring charges..................... 2,069 -- -- -- 3,873
------- ------- -------- -------- -------
Total operating expenses.................. 5,283 3,080 14,047 16,102 20,004
------- ------- -------- -------- -------
Loss from operations........................ (6,971) (553) (2,774) (3,138) (6,441)
Interest expense, net....................... (96) (152) (613) (578) (513)
------- ------- -------- -------- -------
Loss before income taxes.................... (7,067) (705) (3,387) (3,716) (6,954)
Income taxes................................ -- -- -- -- --
------- ------- -------- -------- -------
Net loss.................................... $(7,067) $ (705) $ (3,387) $ (3,716) $(6,954)
======= ======= ======== ======== =======
Net loss per share, basic and diluted....... $(7,067) $ (705) $ (3,387) $ (3,716) $(6,954)
======= ======= ======== ======== =======
Shares used in computing net loss per share,
basic and diluted......................... 1 1 1 1 1
======= ======= ======== ======== =======
</TABLE>
<TABLE>
<CAPTION>
AS OF
APRIL 30, AS OF JANUARY 31,
--------- ------------------------------
2000 2000 1999 1998
--------- -------- -------- --------
<S> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents.............................. $ -- $ 112 $ 198 $ 246
Working capital........................................ 373 4,209 1,066 (1,556)
Total assets........................................... 11,521 16,544 16,750 16,364
Long-term debt, less current portion................... 252 302 154 --
Amount due to Parent................................... 24,523 21,769 17,337 10,215
Total stockholders' equity (deficit)................... (21,773) (14,706) (11,319) (6,954)
</TABLE>
------------------------
(1) Entrada was acquired by Parent on July 1, 1996.
11
<PAGE>
SELECTED HISTORICAL FINANCIAL DATA--ENTRADA (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
JULY 1, 1996 MAY 1,
TO 1996 TO YEARS ENDED APRIL 30,
JANUARY 31, JUNE 30, -----------------------
1997(1) 1996 1996 1995
------------- --------- ---------- ----------
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net revenues.......................................... $14,884 $ 5,174 $25,731 $30,627
Cost of sales......................................... 8,545 2,930 17,795 20,159
------- ------- ------- -------
Gross profit.......................................... 6,339 2,244 7,936 10,468
Operating expenses:
Research and development............................ 1,128 450 2,874 2,790
Selling and marketing............................... 3,374 1,003 7,000 10,037
General and administrative.......................... 1,219 183 1,800 2,004
Non-recurring charges............................... 6,877 -- -- --
------- ------- ------- -------
Total operating expenses............................ 12,598 1,636 11,674 14,831
------- ------- ------- -------
Loss from operations.................................. (6,259) 608 (3,738) (4,363)
Interest expense, net................................. 152 63 413 148
------- ------- ------- -------
Loss before income taxes.............................. (6,411) 545 (4,151) (4,511)
Income taxes.......................................... -- 7 1 17
------- ------- ------- -------
Net loss.............................................. $(6,411) $ 538 $(4,152) $(4,528)
======= ======= ======= =======
Net loss per share, basic and diluted................. $(6,411) $ 538 $(4,152) $(4,528)
======= ======= ======= =======
Shares used in computing net loss per share, basic and
diluted............................................. 1 1 1 1
======= ======= ======= =======
<CAPTION>
AS OF AS OF AS OF APRIL 30,
JANUARY 31, JUNE 30, -----------------------
1997 1996 1996 1995
------------- --------- ---------- ----------
<S> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents............................. $ 20 $ 228 $ 511 $ (10)
Working capital....................................... 1,276 4,094 1,903 4,035
Total assets.......................................... 13,260 11,654 11,243 14,778
Long-term debt, less current portion.................. -- -- -- --
Amount due to Parent.................................. 7,287 1,400 1,400 --
Total stockholders' equity (deficit).................. 649 1,971 1,726 5,878
</TABLE>
------------------------
(1) Entrada was acquired by Parent on July 1, 1996.
12
<PAGE>
SUMMARY UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT PER SHARE DATA)(1)
<TABLE>
<CAPTION>
THREE
MONTHS
ENDED YEAR ENDED
APRIL 30, 2000 JANUARY 31, 2000
--------------- ----------------
<S> <C> <C>
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Net revenues.............................................. $ 6,860 $46,923
Loss from operations...................................... (8,127) (7,124)
Net loss.................................................. (8,110) (7,335)
Net loss per share........................................ (0.86) (0.78)
Number of shares used to compute net loss per share....... 9,453 9,430
</TABLE>
<TABLE>
<CAPTION>
AS OF
--------------
APRIL 30, 2000
--------------
<S> <C>
PRO FORMA CONSOLIDATED BALANCE SHEET DATA:
Cash...................................................... $13,057
Working capital........................................... 15,399
Total assets.............................................. 32,088
Long-term debt............................................ 261
Total stockholders' equity................................ 17,703
</TABLE>
------------------------
(1) The pro forma consolidated financial information for Sync and Entrada
reflects the issuance of 5,237,401 shares of Sync common stock (the actual
number of shares to be issued may be different) for all of the issued and
outstanding Entrada shares and the contribution by Parent of not less than
$3,300,000 to the capital of Entrada in connection with the merger and
reflects the issuance of 700,000 shares of common stock upon the conversion
of all of Sync's outstanding Series A Preferred Stock, which was issued in
May 2000 for net proceeds of approximately $2.1 million. The pro forma
consolidated financial information excludes the effect of the issuance of up
to 2 million additional shares of Sync common stock to Parent in connection
with the merger.
13
<PAGE>
COMPARATIVE PER SHARE DATA
The following table sets forth certain historical per share data of Sync and
Entrada and combined per share data on an unaudited pro forma basis after giving
effect to the merger on a purchase accounting basis assuming 5,237,401 shares of
Sync common stock are issued in the merger in exchange for all of the Entrada
common stock outstanding and the contribution by Parent of not less than
$3,300,000 to the capital of Entrada prior to the merger, and reflecting the
issuance of 700,000 shares of common stock upon the conversion of all of the
outstanding Series A Preferred Stock. The data in the table does not give effect
to the issuance of up to 2 million additional shares of Sync common stock to
Parent in the merger. The information set forth below should be read in
conjunction with the selected historical consolidated financial data, the
unaudited pro forma combined condensed financial information and the historical
financial statements of Sync and Entrada included in this proxy
statement/prospectus. The unaudited pro forma combined condensed financial
information is not necessarily indicative of the operating results that would
have been achieved had the transaction been effected as of the beginning of the
periods presented and should not be construed as representative of future
results of operations. The merger is expected to be accounted for as a reverse
acquisition of Sync by Entrada. Neither Sync nor Entrada has ever declared or
paid cash dividends on their respective shares of capital stock.
<TABLE>
<CAPTION>
THREE MONTHS
ENDED YEAR ENDED
MARCH 31, DECEMBER 31,
2000 1999
------------ ------------
<S> <C> <C>
Per share amounts:
Historical-Sync:
Net loss...................................... $ (0.32) $ (1.22)
Book value (at period end).................... 3.46
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS
ENDED YEAR ENDED
APRIL 30, 2000 JANUARY 31, 2000
-------------- ----------------
<S> <C> <C>
Historical-Entrada:
Net loss...................................... $ (7,067) $ (3,387)
Book value (at period end).................... (21,773)
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS
ENDED YEAR ENDED
APRIL 30, 2000 JANUARY 31, 2000
-------------- ----------------
<S> <C> <C>
Per Sync share:
Net loss...................................... $ (0.86) $ (0.78)
Book value.................................... 1.81
Per equivalent Entrada share(1):
Net loss...................................... $ (4,504) $(4,085)
Book value.................................... 9,479
</TABLE>
------------------------
(1) In accordance with the merger agreement, 5,237,401 shares are anticipated to
be issued upon the completion of the merger in exchange for the 1,000 shares
of issued and outstanding common stock of Entrada and the contribution by
Parent of not less than $3,300,000 to the capital of Entrada prior to the
merger. Accordingly, the per share equivalent Entrada share amounts have
been derived based upon the calculation that each Entrada share is
equivalent to 5,237 Sync shares.
14
<PAGE>
COMPARATIVE STOCK PRICE DATA AND DIVIDEND HISTORY
Sync'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 Sync's common stock as reported in the Nasdaq National Market for the
periods indicated.
<TABLE>
<CAPTION>
HIGH LOW
-------- --------
<S> <C> <C>
2000
Q1........................................................ $ 5.41 $ 3.25
Q2........................................................ 4.75 1.75
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>
On April 10, 2000, the last trading day prior to the announcement by Sync
and Entrada that they had reached an agreement concerning the merger, the
closing sales price of Sync common stock as reported on the Nasdaq National
Market was $3.125 per share. On July 31, 2000, the closing sale price of Sync
common stock as reported on the Nasdaq National Market was $2.75 per share.
As of July 18, 2000, there were 214 stockholders of record of Sync common
stock, and Sync believes there were approximately 2,900 beneficial owners of
Sync common stock.
Following the merger, Sync common stock will continue to be traded on the
Nasdaq National Market. See "Risk Factors" beginning on page 16. Sync is in the
process of applying for a new trading symbol to take effect upon the
consummation of the merger.
Neither Sync nor Entrada has ever paid cash dividends on their capital
stock. Any future determination to pay cash dividends will be at the discretion
of the board of directors and will be dependent upon the combined companies'
financial condition, results of operations, capital requirements and such other
factors as the board of directors deems relevant.
15
<PAGE>
RISK FACTORS
IN ADDITION TO THE OTHER INFORMATION CONTAINED OR INCORPORATED BY REFERENCE
IN THIS PROXY STATEMENT/ PROSPECTUS, SYNC STOCKHOLDERS SHOULD CAREFULLY CONSIDER
THE FOLLOWING RISK FACTORS IN DECIDING WHETHER TO VOTE FOR THE MERGER. THE
OCCURRENCE OF ANY OF THE RISKS DESCRIBED BELOW OR INCORPORATED BY REFERENCE
HEREIN COULD MATERIALLY ADVERSELY AFFECT THE BUSINESS, FINANCIAL CONDITION AND
RESULTS OF OPERATIONS OF SYNC.
RISKS RELATED TO THE MERGER
SYNC AND ENTRADA MAY BE UNABLE TO SUCCESSFULLY INTEGRATE THEIR OPERATIONS
AND REALIZE THE COST SAVINGS THAT WE ANTICIPATE.
The success of the merger depends in substantial part on the ability of Sync
and Entrada to integrate their respective operations in an efficient and
effective manner. The integration of Entrada's operations into Sync following
the merger will require the dedication of management resources in order to
achieve the anticipated operating efficiencies of the merger which may
temporarily distract attention from day to day business operations of the
combined companies. The difficulties of combining the Entrada operations into
Sync are exacerbated by the necessity of coordinating geographically separated
organizations, integrating personnel with disparate business backgrounds and
combining different corporate cultures. No assurance can be given that
difficulties encountered in integrating the operations of Entrada into Sync will
be overcome or that the benefits expected from such integration will be
realized. The inability of management to successfully integrate the operations
of the two companies could have a material adverse effect on the business,
results of operations and financial condition of the combined companies. In
addition, as commonly occurs with mergers of technology companies, aggressive
competitors may undertake initiatives to attract customers and to recruit key
employees, which could have a material adverse effect on the business, results
of operations and financial condition of Sync.
THE COMBINED COMPANIES WILL INCUR SUBSTANTIAL EXPENSES AND RESTRUCTURING
CHARGES IN CONNECTION WITH THE MERGER.
Sync and Entrada expect to incur certain expenses in connection with the
restructuring and consolidation of the operations of the combined companies
including, but not limited to, costs related to the closure and elimination of
duplicate leased facilities and write-offs of related fixed assets, write-offs
of discontinued products, and severance costs. Sync and Entrada anticipate that
the integration activities will ultimately result in increased efficiencies and
lower operating costs. These activities have not been formalized, and therefore
the expenses and related efficiency cost savings are not currently estimable
with a reasonable degree of accuracy. Although Sync and Entrada expect that the
elimination of duplicative expenses as well as other efficiencies related to the
integration of the businesses may offset additional expenses over time, there
can be no assurance that such net benefit will be achieved in the near term, or
at all.
Parent expects to incur direct transaction costs of approximately $200,000
consisting primarily of legal and accounting costs. These direct costs have been
included in the estimated purchase price reflected in the pro forma condensed
consolidated balance sheet.
Sync estimates it will incur direct transaction costs of approximately
$800,000 associated with the merger, consisting primarily of fees for investment
banking, filings with regulatory agencies, legal, accounting, financial printing
and other related costs. These transaction costs will be expensed as they are
incurred by Sync and have been reflected in the pro forma condensed consolidated
balance sheet.
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THE MERGER MAY ADVERSELY IMPACT THE BUYING PATTERNS OF THE CUSTOMERS OF THE
COMBINED COMPANIES.
There is no assurance that resellers and current and potential end-users of
Sync and Entrada products will continue their current buying patterns without
regard to the announced merger. Certain customers may defer purchasing decisions
as they evaluate the combined companies' future product strategy and consider
product offerings of competitors. If substantial numbers of customers decide to
defer or cancel such purchases, such deferrals or cancellations could have a
material adverse effect on the business, results of operations and financial
condition of the combined companies.
SYNC AND ENTRADA MAY NOT BE ABLE TO OBTAIN THIRD PARTY CONSENTS IN
CONNECTION WITH THE MERGER.
Sync and Entrada each have contracts with many suppliers, customers and
other business partners relating to, among other things, certain intellectual
property rights. Some of these contracts require Sync and Entrada to obtain the
consent, waiver or approval of these other parties in connection with the
merger. If consent, waiver or approval cannot be obtained, Sync and Entrada may
lose the right to use intellectual property that is necessary for their
respective businesses. Sync and Entrada have agreed to use commercially
reasonable efforts to secure the necessary consents, waivers and approvals.
However, Sync and Entrada may not be able to obtain all of the necessary
consents, waivers and approvals, which could have a material adverse effect on
the business, results of operations and financial condition of the combined
companies.
OBTAINING REQUIRED GOVERNMENT APPROVALS AND SATISFYING CLOSING CONDITIONS
MAY DELAY OR PREVENT COMPLETION OF THE MERGER.
Completion of the merger is conditioned upon the receipt of all material
governmental authorizations, consents, orders and approvals, including the
expiration or termination of the applicable waiting periods, and any extension
of the waiting periods, under the Hart-Scott-Rodino Antitrust Improvements Act
of 1976, as amended. Sync and Entrada intend to vigorously pursue all required
approvals. The requirement for these approvals could delay the completion of the
merger for a significant period of time after Sync stockholders have approved
the proposals relating to the merger at the annual meeting. No assurance can be
given, however, that these approvals will be obtained or that the required
conditions to closing will be satisfied and, if all such approvals are obtained
and the conditions are satisfied, no assurance can be given as to the terms,
conditions and timing thereof.
SYNC'S OFFICERS AND DIRECTORS HAVE CONFLICTS OF INTEREST THAT MAY INFLUENCE
THEM TO SUPPORT THE MERGER.
The directors and officers of Sync have certain interests in the merger and
participate in certain arrangements that are different from, or are in addition
to those of Sync stockholders generally. These interests and arrangements
include:
- all executive officers of Sync are parties to agreements that provide for
the partial vesting of any unvested options upon a change in control and
certain severance benefits if such executive officer is terminated
following a corporate transaction such as the merger
- Mr. Gregorio Reyes, the current Chairman of the Sync board of directors,
will remain as a director of Sync following the merger, and certain
current executive officers of Sync will remain as executives of Sync
following the merger
- Mr. Reyes is party to an agreement that provides for the full vesting of
any unvested options upon a change in control and certain severance
benefits if he is terminated following a corporate transaction such as the
merger.
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THE VALUE OF SYNC STOCKHOLDERS' HOLDINGS IN SYNC MAY BE DIMINISHED AS A
RESULT OF THE MERGER.
Although the companies believe that beneficial synergies will result from
the merger, there can be no assurance that the combining of the two companies'
businesses, even if achieved in an efficient, effective and timely manner, will
result in combined results of operations and financial condition superior to
what would have been achieved by each company independently, or as to the period
of time required to achieve such result. The issuance of Sync common stock in
connection with the merger may have the effect of reducing Sync's net income per
share from levels otherwise expected and could reduce the market price of the
Sync common stock unless revenue growth or cost savings and other business
synergies sufficient to offset the effect of such issuance can be achieved. As a
consequence of the merger, Sync stockholders will lose the chance to invest in
the development and exploitation of Sync's products on a stand-alone basis.
Additionally, Sync following the merger will have different management than
Sync's current management, and consequently the management of Sync following the
merger may make strategic and operational decisions that differ from those of
Sync's current management.
THE RATIO FOR DETERMINING THE NUMBER OF SYNC SHARES OF COMMON STOCK THAT ARE
TO BE EXCHANGED FOR ALL OF THE SHARES OF ENTRADA COMMON STOCK IS FIXED.
Under the terms of the merger agreement, the outstanding shares of Entrada
common stock issued and outstanding at the closing will be converted into shares
of Sync common stock. The merger agreement does not contain any provisions for
adjustment of the exchange amount or termination of the merger agreement based
solely on fluctuations in the price of Sync common stock.
SYNC CANNOT ASSURE YOU THAT ITS STOCK PRICE WILL NOT DECLINE AFTER THE
MERGER.
Factors such as announcements of technological innovations or the
introduction of new products by the combined companies or their competitors, as
well as market conditions in the technology sector, may have a significant
effect on the market price of Sync's common stock following the merger. 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, together with the substantial increase in the number of
shares of Sync common stock which will be available for sale in the market after
the merger, may have an adverse effect on the price of Sync's common stock
following the merger.
THE COMBINED COMPANIES MAY FACE INCREASED CREDIT RISKS AS A RESULT OF THE
MERGER.
Entrada distributes a significant portion of its products through third
party distributors, resellers and original equipment manufacturers ("OEMs"), and
historically, a significant portion of Entrada's sales have been concentrated
with a few such customers. While Sync and Entrada have each continuously
monitored and managed these credit risks, financial difficulties on the part of
one or more of their respective significant distributors, resellers or OEM
partners may have a material adverse effect on the combined companies.
RISKS RELATED TO THE COMBINED COMPANIES' BUSINESS
SYNC AND ENTRADA HAVE INCURRED CONSISTENT OPERATING LOSSES AND THE COMBINED
COMPANIES MAY CONTINUE TO INCUR SIGNIFICANT NET LOSSES AND NEGATIVE CASH FLOWS
IN THE FUTURE, AND THE COMBINED COMPANIES MAY NEVER BE PROFITABLE.
Sync has experienced operating losses since inception and has never been
profitable. In recent years, Sync has experienced operating losses of
$18.0 million in 1997, $16.3 million in 1998 and $4.7 million in 1999. As of
December 31, 1999, Sync had an accumulated deficit of approximately
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$58.7 million. Entrada experienced operating losses of $6.4 million in fiscal
1998, $3.1 million in fiscal 1999 and $2.8 million in fiscal 2000, and has not
achieved operating profitability. As of January 31, 2000, Entrada had an
accumulated deficit of approximately $20.5 million. Both Sync and Entrada have
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 caused, or may cause, 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 products;
- the market conditions, competition and pricing in the networking industry;
- the timing of capital expenditures by target market customers;
- the success in developing, introducing and shipping new products;
- new product introductions by 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, Sync
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 greater percentage of the combined companies' net
revenues than existed for Sync prior to the merger, gross profit as a percentage
of net revenues may decline.
The combined companies' 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 many of Sync's
and Entrada's products typically involve a sales cycle of several months or over
a year from the point of initial customer contact until receipt of the first
system order, and, in addition, Sync and Entrada have in the past encountered,
and may in the future encounter, delays between initial orders and network-wide
deployment or OEM product release. There can be no assurance that average sales
cycles will not increase in future periods. Significant portions of the combined
companies' expenses are relatively fixed. If sales are below expectations in any
given period, the adverse effect of a shortfall in sales on the combined
companies' operating results may be magnified by their inability to adjust
spending to compensate for such shortfall. Sync and Entrada have 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 combined companies will be able to attain or sustain
profitability on a quarterly or an annual basis. In addition, if the combined
companies' operating results fall below the expectations of public market
analysts and investors, the price of Sync's common stock would likely be
materially and adversely affected.
IF THE COMBINED COMPANIES FAIL TO MANAGE EXPANSION, IF ANY, EFFECTIVELY,
THEY MAY NOT BE ABLE TO SUCCESSFULLY MANAGE THEIR BUSINESS, WHICH COULD CAUSE
THE COMBINED COMPANIES TO FAIL TO MEET CUSTOMER DEMAND OR TO ATTRACT NEW
CUSTOMERS.
Neither Sync nor Entrada has had significant experience in managing issues
related to the expansion of their respective operations, which may place
significant demands on the combined
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companies' administrative, operational and financial resources. To manage future
growth, if any, the combined companies must:
- implement additional management information systems
- improve their operating, administrative, financial and accounting systems,
procedures and controls
- attract, train and retain new employees
- maintain close coordination among their executive, engineering,
professional services, accounting, finance, marketing, sales and
operations organizations.
There can be no assurance that the combined companies will be able to
perform such actions successfully. The combined companies intend to continue to
invest in improving their financial systems and controls in connection with
higher levels of operations. In the future, the combined companies may make
additional acquisitions of complementary companies, products or technologies.
Managing acquired businesses entails numerous operational and financial risks,
including difficulties in assimilating acquired operations, diversion of
management's attention to other business concerns, amortization of acquired
intangible assets and potential loss of key employees or customers of acquired
operations. There can be no assurance that the combined companies will be able
to effectively achieve growth, or manage any such growth, and failure to do so
could have a material adverse effect on the combined companies' operating
results.
THE COMBINED COMPANIES WILL DEPEND ON THIRD PARTY LICENSES FOR THEIR
PRODUCTS.
Sync and Entrada rely on certain software technology which is licensed from
third parties and used in Sync's and Entrada's products to perform key functions
and provide additional functionality. Because the combined companies' products
will incorporate software developed and maintained by third parties, the
combined companies will be, to a certain extent, dependent upon such third
parties' ability to maintain or enhance their current products, to develop new
products on a timely and cost-effective basis, and to respond to emerging
industry standards and other technological changes. Further, these third-party
technology licenses may not always be available to the combined companies on
commercially reasonable terms or at all. If the combined companies' agreements
with third-party vendors are not renewed or the third-party software fails to
address the needs of the combined companies' software products, the combined
companies would be required to find alternative software products or
technologies of equal performance or functionality. Sync and Entrada cannot
assure that they would be able to replace the functionality provided by
third-party software if the combined companies lost the license to this
software, if it became obsolete or incompatible with future versions of the
combined companies' products, or if the software otherwise was not adequately
maintained or updated.
THE COMBINED COMPANIES WILL DEPEND ON CONTINUED DEMAND FOR THEIR PRODUCTS BY
ORIGINAL EQUIPMENT MANUFACTURERS.
Sync and Entrada have OEM relationships with a number of companies that
provide network access hardware. Agreements with OEM customers provide for
Sync's and Entrada's software products to be bundled with the OEM's hardware
products when sold. The cost, if any, of integrating software is assumed by the
OEM. These agreements may provide for a license fee to be paid to Sync or
Entrada. The license fee may be a royalty based upon unit sales, a flat fee or a
fee for a certain time period. Sync and Entrada cannot assure you that OEM
customers will accurately report license fees or have the ability to pay them.
Other risks include whether the OEMs will:
- give sufficient priority to marketing the combined companies' products
- continue to offer the combined companies' products at all
- elect instead to bundle competitor's products.
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In 1999, 1998 and 1997, OEM revenue represented approximately 6%, 19% and 25%,
respectively, of Sync's total net revenue. In fiscal 2000, 1999 and 1998, OEM
revenue represented approximately 46%, 26% and 21%, respectively, of Entrada's
total net revenue. In the past several years, Sync has seen a significant
reduction in revenue from certain OEM customers and the combined companies may
not be able to replace the revenue generated from those relationships.
In addition, each of the combined companies' OEMs will be able to cease
marketing the combined companies' products with limited notice and with little
or no penalty.
THE COMBINED COMPANIES WILL RELY ON THIRD PARTY MANUFACTURERS TO PRODUCE
THEIR PRODUCTS, AND THEIR REPUTATION AND RESULTS OF OPERATIONS COULD BE
ADVERSELY AFFECTED BY THE COMBINED COMPANIES INABILITY TO CONTROL THEIR
OPERATIONS.
The combined companies' manufacturing operations will consist primarily of
materials planning and procurement, light assembly, system integration, testing
and quality assurance. Sync and Entrada have entered into arrangements with
contract manufacturers to outsource substantial portions of their respective
board level procurement, assembly and system test operations, and Sync and
Entrada expect to expand the use of such outsource arrangements in the future.
The combined companies' reliance on third party manufacturers will expose them
to the following risks outside their control:
- unexpected increases in manufacturing costs;
- interruptions in shipments if any manufacturer is unable to complete
production;
- inability to control quality of finished products;
- inability to control delivery schedules;
- unpredictability of manufacturing yield;
- potential lack of adequate capacity; and
- potential inability to secure adequate volumes of components.
The inability of the combined companies' contract manufacturers to provide
the combined companies with adequate supplies of high quality products could
have a material adverse effect upon the combined companies' business, operating
results and financial condition. The loss of any of the combined companies'
contract manufacturers could cause a delay in the combined companies' ability to
fulfill orders while the combined companies identify a replacement manufacturer.
Such an event could have a material adverse effect on the combined companies'
business, operating results and financial condition.
The combined companies' 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 combined companies' business, operating
results and financial condition.
THE COMBINED COMPANIES WILL BE DEPENDENT ON SUPPLIERS, MANY OF WHICH WILL BE
THE SOLE SOURCE FOR THEIR COMPONENTS, AND THEIR PRODUCTION WOULD BE SERIOUSLY
HARMED IF THESE SUPPLIERS ARE NOT ABLE TO MEET THE COMBINED COMPANIES' DEMAND
AND ALTERNATIVE SOURCES ARE NOT AVAILABLE.
Certain key components used in the manufacture of Sync's and Entrada'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, printed circuit boards and selected integrated circuits. Sync and
Entrada generally rely upon contract manufacturers to
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buy component parts that are incorporated into board assemblies. Sync and
Entrada each directly buys final assembly parts, such as plastics and metal
covers, cables and other parts used in final configurations. The combined
companies generally will 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 combined
companies to procure these components from alternate sources at acceptable
prices and within a reasonable time, could have a material adverse effect upon
the combined companies' business, operating results and financial condition. If
orders do not match forecasts, the combined companies 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 Sync and Entrada have experienced shortages of certain components and
have paid above-market prices to acquire such components on an accelerated basis
or have 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 combined companies' business, operating results
and financial condition.
THE COMBINED COMPANIES WILL HAVE POTENTIAL SEVERANCE PAYMENT LIABILITIES.
Sync's executive officers have entered into employment agreements under
which such persons will be entitled to receive severance payments in certain
circumstances, including following any termination of their employment within
one year following a "change in control" of Sync. A change in control will be
deemed to result from the consummation of the merger. Assuming the termination
of the employment of all of the Sync executive officers immediately following
the consummation of the merger, the combined companies' aggregate liabilities
under such severance provisions could be as much as approximately $800,000. Due
to the nature of these termination rights, some or all of these severance
payments may not be includable in the merger reserve and, therefore, could
adversely impact earnings in any subsequent quarters in which the rights are
exercised.
THERE IS NO ASSURANCE THAT SYNC WILL CONTINUE TO MEET THE REQUIREMENTS FOR
CONTINUED LISTING ON THE NASDAQ NATIONAL MARKET.
Sync's common stock is listed and traded on the Nasdaq National Market. On
January 4, 1999, Sync received a letter from Nasdaq notifying it of its failure
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, Sync implemented a 1 for 5 reverse stock split on June 28, 1999.
As a result of the reverse stock split, Sync 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 Sync will meet all of the Nasdaq listing requirements after the
merger or on an ongoing basis, or that Sync will be able to take action in order
to continue to meet the listing requirements.
SYNC'S AND ENTRADA'S CHARTER DOCUMENTS, AND CERTAIN BENEFIT PLANS AND OTHER
AGREEMENTS, WILL CONTAIN ANTI-TAKEOVER PROVISIONS.
Sync and Entrada are currently, and following the merger will continue to
be, subject to the provisions of Section 203 of the Delaware General Corporation
Law, an anti-takeover law. In addition, certain provisions of Sync's and
Entrada'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 Sync and Entrada,
which could have an adverse effect on the market price of Sync's common stock.
Certain of Sync's and Entrada's stock option and purchase plans and agreements
will provide for assumption of such plans, or, alternatively, immediate vesting
upon a change of control or
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similar event. In addition, Sync and Entrada have entered into severance
agreements with their respective officers, pursuant to which such officers are
entitled to defined severance payments if they are actually or constructively
terminated within specified time periods following a change of control. The
board of directors of Sync currently has, and following the merger will continue
to have, authority to issue up to 1,300,000 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 Sync,
thereby delaying, deferring or preventing a change in control. 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.
Sync anticipates the need to raise additional capital after the completion
of the merger in order to complete its business strategy.
RISKS RELATED TO THE COMBINED COMPANIES' INDUSTRY
THE NETWORK ACCESS MARKET IS HIGHLY COMPETITIVE, AND THE COMBINED COMPANIES
WILL FACE RISKS ASSOCIATED WITH RAPIDLY CHANGING TECHNOLOGY, EVOLVING INDUSTRY
STANDARDS AND FREQUENT NEW PRODUCT INTRODUCTIONS.
The market for communications products is intensely competitive and subject
to rapid technological change and emerging industry standards, with frequent new
product introductions and enhancements, and constant pressure to reduce prices.
Increased competition may force us to lower our prices, experience decreased
gross margins or lose market acceptance. Sync believes that the principal
competitive factors in the combined companies' market include:
- expertise and familiarity with storage area networks and Fibre Channel
protocols
- expertise and knowledge with mission-critical network solutions
- product performance, features, functionality and reliability
- price and overall cost of ownership
- timeliness of new product introductions
- adoption of emerging industry standards
- service and support.
Sync's and Entrada's current competitors include internetworking companies
such as Cisco Systems, Inc., Lucent Technologies, Inc., Netopia, Inc., Nortel
Networks Corp. Hldg., and Intel Corporation, frame relay access device ("FRAD")
providers such as Hypercom Network Systems, Motorola Information Systems Group,
and Cabletron Systems, Inc., and circuit management and digital transmission
providers such as Visual Networks, Inc., NetScout, Quick Eagle Networks, Racal
Datacom, Inc., ADC Telecommunications, Inc., Verilink Corporation, AT&T Paradyne
and Adtran, Inc., among others. Regarding the market for storage area networking
products, Entrada expects that its competitors will include JNI Corporation,
Emulex Corporation, Brocade Communications Systems, Inc., Interphase
Corporation, Gadzoox Networks, Inc. and others. In the LAN adapter area, Entrada
competes with 3Com Corporation, Adaptec, Inc., Alteon WebSystems, Inc., Intel
Corporation, Interphase Corporation, Sun Microsystems, Inc., RAMiX Inc., SBS
Technologies, Inc., VMIC, ZYNX Corporation and others. In the WAN adapter area,
Entrada competes with Ariel Corporation, Digi
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International, Inc., Eicon Technology, Interphase Corporation, Brooktrout Inc.,
Patriot Scientific Corporation, Performance Technologies Incorporated, Pika
Technologies Inc., SDL Communications, Inc. and others. In the remote access
area, Entrada competes with Lucent Technologies, Inc., Cisco Systems, Inc., 3Com
Corporation, LM Ericsson Telephone Company, Intel Corporation, Nbase-Xyplex,
Nortel Networks Corp. Hlgd., Perle Systems Limited, General DataComm
Inds. Inc., Cabletron Systems, Inc., Assured Access Technologies, Inc., and
others. Potential competitors of the combined companies include other
internetworking and WAN access and transmission companies, frame relay switch
providers, and the combined companies' channel partners.
The combined companies face the following challenges from their competitors:
- Many of these 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
- Certain of these competitors 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
- Many of these competitors have long-standing customer relationships with
large enterprises, SAN market system integrators, and OEMs that are part
of the combined companies' target market, and these relationships may make
it more difficult to complete sales of the combined companies' products to
these enterprises
- Certain of Sync's channel partners have in the past developed competitive
products and terminated their relationships with Sync, and such
developments could occur in the future with respect to the combined
companies.
As a consequence of all these factors, the combined companies may face
increased competition, particularly in the SAN 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 combined
companies' business, operating results and financial condition. There can be no
assurance that the combined companies will be able to compete successfully in
the future.
THE COMBINED COMPANIES WILL DEPEND ON KEY PERSONNEL AND WILL FACE RISKS
ASSOCIATED WITH THE HIRING, RETENTION AND INTEGRATION OF SUFFICIENT QUALIFIED
PERSONNEL.
The success of the combined companies after the merger depends in part upon
the retention of key employees of Sync and Entrada. In addition, the combined
companies' future success also depends in large part upon their ability to
attract highly skilled engineering, managerial, sales and marketing personnel.
Competition for qualified personnel in the networking industry is very intense,
especially with respect to sales and engineering personnel. Stock options serve
as an important incentive for hiring and retaining employees, and Sync
anticipates that it will be able to take the steps necessary to provide for the
grant of options to employees after the merger. During 1999, Sync and Entrada
encountered significant personnel turnover in research and development, sales
and other functional areas and experienced significant turnover in the
composition of its executive officers. Such turnover has affected its ability to
successfully develop new products and generate additional business. The loss of
the services of any of key personnel or the failure to attract or retain
qualified personnel in the future could have a material adverse effect on the
combined companies' business, operating results or financial condition.
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IF THIRD PARTIES INFRINGE THE COMBINED COMPANIES' INTELLECTUAL PROPERTY AND
PROPRIETARY TECHNOLOGY, THE COMBINED COMPANIES MAY EXPEND SIGNIFICANT RESOURCES
ENFORCING THEIR RIGHTS OR SUFFER COMPETITIVE INJURY.
The combined companies' future success depends, in part, upon their
proprietary technology. Sync 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 on its products. Entrada owns nine patents,
but such patents are not anticipated to be material to the business of the
combined companies. There can be no assurance that the steps taken by the
combined companies to protect their intellectual property will be adequate to
prevent misappropriation of their technology or that their competitors will not
independently develop technologies that are substantially equivalent or superior
to the combined companies' technology. In the event that protective measures are
not successful, the combined companies' business, operating results and
financial condition could be materially and adversely affected. In addition, the
laws of some foreign countries will not protect the combined companies'
proprietary rights to the same extent as do the laws of the United States.
THIRD PARTIES MAY CLAIM IN THE FUTURE THAT THE COMBINED COMPANIES ARE
INFRINGING THE INTELLECTUAL PROPERTY OF SUCH THIRD PARTIES, AND THE COMBINED
COMPANIES COULD SUFFER SIGNIFICANT LITIGATION OR LICENSING EXPENSES OR BE
PREVENTED FROM SELLING PRODUCTS IF ANY SUCH CLAIMS ARE SUCCESSFUL.
The combined companies will be subject to the risk of adverse claims and
litigation alleging infringement of intellectual property rights of others. The
Parent recently received correspondence from a third party claiming that a
functionality of an Entrada's product infringes a patent owned or controlled by
Lucent. Although the Parent and Entrada believe that Entrada's current activity
does not infringe this patent, the Parent and Entrada cannot be certain that
their belief would be affirmed in any patent litigation. There can be no
assurance that other third parties will not assert infringement claims in the
future with respect to Sync's and Entrada's current or future products or that
any such claims will not require the combined companies 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 expensive and time-consuming and could have a material adverse effect
on the combined companies' business, operating results and financial condition
regardless of the outcome of such litigation.
PRODUCT DEFECTS MAY HARM THE COMBINED COMPANIES' BUSINESS.
Products as complex as those to be offered by the combined companies may
contain undetected software or hardware errors. Such errors have occurred in the
past with respect to products offered by Sync and Entrada, and there can be no
assurance that, despite testing by the combined companies 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
combined companies' products, additional warranty expense, diversion of
engineering and other resources from the combined companies' product development
efforts or the loss of credibility with the combined companies' end-user
customers, channel partners and other resellers, any of which could have a
material adverse effect on the combined companies' business, operating results
and financial condition.
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THE COMBINED COMPANIES MAY FACE RISKS ASSOCIATED WITH THE CONSOLIDATION OF
THE NETWORK ACCESS BUSINESS INDUSTRY.
Certain of Sync's and Entrada's major competitors have been engaged in
merger and acquisition transactions. Such consolidations by competitors are
likely to create entities with increased market shares, customer bases,
technology and marketing expertise, sales force size, or proprietary technology
in product markets in which the combined companies will compete. These
developments may adversely affect the combined companies' ability to compete.
THE COMBINED COMPANIES' FINANCIAL CONDITION MAY BE ADVERSELY IMPACTED BY A
DECLINE IN GENERAL ECONOMIC CONDITIONS.
Demand for the combined companies' products will depend 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 combined companies will not experience a decline in demand
for their products due to general economic conditions. Any such decline could
have a material adverse effect on the combined companies' business, operating
results and financial condition.
THE COMBINED COMPANIES MAY FACE RISKS ASSOCIATED WITH 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 adverse effect on the combined companies' business. For example, should
tariffs for frame relay services increase relative to tariffs for dedicated
leased lines, the cost-effectiveness of the combined companies' products could
be reduced, which could have a material adverse effect on the combined
companies' business, operating results and financial condition. In addition, the
combined companies' products must meet industry standards and receive
certification for connection to certain public telecommunications networks prior
to their sale. In the United States, the combined companies' products must
comply with various regulations defined by the Federal Communications Commission
and Underwriters Laboratories. Internationally, the combined companies' products
must comply with standards established worldwide, including 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 combined
companies' business, operating results and financial condition.
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THE SYNC ANNUAL MEETING
We are furnishing this proxy statement/prospectus to stockholders of Sync as
part of the solicitation of proxies by the Sync board of directors for use at
the annual meeting.
DATE, TIME AND PLACE
The Sync annual meeting will be held at the Newport Beach Marriott Suites,
500 Bayview Circle, Newport Beach, California, at 10:00 a.m., local time, on
Wednesday, August 30, 2000.
PURPOSE OF ANNUAL MEETING
At the Sync annual meeting, we are asking holders of Sync common stock and
Series A Preferred Stock to adopt the following proposals:
1. To authorize the issuance of shares of Sync common stock under the
merger agreement for completion of the merger. The Sync board of directors
has determined that the merger is fair to, and in the best interests of,
Sync stockholders, has approved the merger and the issuance of shares of
Sync common stock under the merger agreement, and recommends that Sync
stockholders vote "for" authorization of the issuance of shares of Sync
common stock under the merger agreement;
2. To approve, as part of the merger, the change of the name of Sync to
"Entrada Networks, Inc.";
3. To elect directors to serve for the ensuing year and until their
successors are elected and qualified;
4. To amend the 1995 Employee Stock Purchase Plan to increase the
number of shares reserved for issuance thereunder by an additional 100,000
shares;
5. To ratify the appointment of Ernst & Young LLP as Sync's independent
auditors for the fiscal year ending December 31, 2000; and
6. To transact such other business as may properly be brought before
the annual meeting or any postponements or adjournments of it by the Sync
board of directors.
RECORD DATE; VOTING POWER; QUORUM
Only holders of record of Sync common stock and Series A Preferred Stock at
the close of business on Tuesday, July 18, 2000, the record date, are entitled
to notice of and to vote at the annual meeting. On the record date, 4,237,156
shares of Sync common stock and Series A Preferred Stock were issued and
outstanding and entitled to vote at the annual meeting. Sync stockholders will
have one vote for each share of Sync stock they owned on the record date. A
quorum is present at the annual meeting if a majority of the shares of Sync
stock issued and outstanding and entitled to vote on the record date are
represented in person or by proxy. For purposes of the quorum and the discussion
below under "Votes Required" regarding the vote necessary to adopt each
stockholder proposal, stockholders of record who are present at the meeting in
person or by proxy and who abstain, including brokers holding customers' shares
of record who cause abstentions to be recorded at the meeting, are considered
stockholders who are present and entitled to vote and they count toward the
quorum. In the event that a quorum is not present at the annual meeting, it is
expected that the meeting will be adjourned or postponed to solicit additional
proxies. Holders of record of Sync common stock and Series A Preferred Stock on
the record date are entitled to one vote per share at the annual meeting for
each of the proposals to be voted on.
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Brokers holding shares of record for customers generally are not entitled to
vote on certain matters unless they receive voting instructions from their
customers. As used in this proxy statement/ prospectus, "uninstructed shares"
means shares held by a broker who has not received instructions from its
customers on such matters and the broker has so notified Sync on a proxy form in
accordance with industry practice or has otherwise advised Sync that it lacks
voting authority. As used in this proxy statement/prospectus, "broker non-votes"
means the votes that could have been cast on the matter in question by brokers
with respect to uninstructed shares if the brokers had received their customers'
instructions.
VOTES REQUIRED
Approval of the proposal to authorize the issuance of Sync common stock for
completion of the merger requires the affirmative vote of at least a majority of
the shares present in person or by proxy at the meeting and entitled to vote.
Uninstructed shares may not be voted on this matter, and therefore broker
non-votes do not affect the outcome. Abstentions have the effect of negative
votes.
Approval of the name change to Entrada Networks, Inc. requires the
affirmative vote of at least a majority of the shares entitled to vote at the
annual meeting. Uninstructed shares may not be voted on this matter. Abstentions
and broker non-votes have the effect of negative votes.
Directors are elected by a plurality and the four (4) nominees who receive
the most votes will be elected. Abstentions and broker non-votes will not be
taken into account in determining the outcome of the election.
Approval of the amendment to the 1995 Employee Stock Purchase Plan requires
the affirmative vote of at least a majority of the shares present in person or
by proxy at the meeting and entitled to vote. Uninstructed shares are entitled
to vote on this matter. Therefore, abstentions and broker non-votes have the
effect of negative votes.
Approval of Ernst & Young LLP as Sync's independent auditors requires the
affirmative vote of at least a majority of the shares present in person or by
proxy at the meeting and entitled to vote. Uninstructed shares are entitled to
vote on this matter. Therefore, abstentions and broker non-votes have the effect
of negative votes.
VOTING BY SYNC DIRECTORS AND EXECUTIVE OFFICERS; PARENT
At the close of business on the record date, directors and executive
officers of Sync and their affiliates owned and were entitled to vote 117,167
shares of Sync common stock, which represented approximately 2.8% of the shares
of Sync stock entitled to vote at the annual meeting. Each Sync director and
executive officer has indicated their present intention to vote, or cause to be
voted, the Sync common stock owned by him or her "for" adoption of the merger
proposals.
At the close of business on the record date, Parent owned and was entitled
to vote 93,900 shares of Sync common stock, which represented approximately 2.2%
of the shares of Sync stock entitled to vote at the annual meeting. The Parent
has indicated that it intends to vote its shares of Sync common stock "for"
adoption of the merger proposals.
At the close of business on the record date, Entrada Holdings owned and was
entitled to vote all of the outstanding Series A Preferred Stock of Sync, which
represented approximately 16.5% of the shares of Sync stock entitled to vote at
the annual meeting. Entrada Holdings is an affiliate of Andersen,
Weinroth & Co., L.P., of which Rohit Phansalkar, the Chairman of the Board,
Chief Executive Officer and a director of Parent is a former partner. An
affiliate of Andersen, Weinroth & Co., L.P. is also a shareholder of Parent.
Entrada Holdings has indicated that it intends to vote its shares of Sync
Series A Preferred Stock "for" adoption of the merger proposals.
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VOTING OF PROXIES
All shares represented by properly executed proxies received in time for the
annual meeting will be voted at the annual meeting in the manner specified by
the holders. Properly executed proxies that do not contain voting instructions
will be voted "for" adoption of the merger proposals.
The persons named as proxies by a stockholder may propose and vote for one
or more adjournments of the annual meeting, including adjournments to permit
further solicitations of proxies. No proxy voted against the merger proposals
will be voted in favor of any such adjournment or postponement.
Other than the matter described under the heading "Possible Stockholder
Proposal," Sync is not aware of, and does not expect that, any matters other
than the proposal described in this proxy statement/prospectus will be brought
before the annual meeting. If, however, the Sync board of directors properly
presents other matters, the persons named as proxies will vote in accordance
with their judgment.
REVOCABILITY OF PROXIES
The grant of a proxy on the enclosed form of proxy does not preclude a
stockholder from voting in person at the annual meeting. A stockholder may
revoke a proxy at any time prior to its exercise by filing with the Secretary of
Sync a duly executed revocation of proxy, by submitting a duly executed proxy to
the Secretary of Sync bearing a later date or by appearing at the annual meeting
and voting in person. Attendance at the annual meeting will not itself
constitute revocation of a proxy.
SOLICITATION OF PROXIES
Sync will bear the cost of the solicitation of proxies from its
stockholders. In addition to solicitation by mail, the directors, officers and
employees of Sync and its subsidiaries may solicit proxies from stockholders by
telephone or other electronic means or in person. Sync will cause brokerage
houses and other custodians, nominees and fiduciaries to forward solicitation
materials to the beneficial owners of stock held of record by such persons. Sync
will reimburse such custodians, nominees and fiduciaries for their reasonable
out-of-pocket expenses in doing so.
MacKenzie Partners will assist in the solicitation of proxies by Sync. Sync
will pay MacKenzie Partners an estimated fee of $25,000, plus reimbursement of
certain out-of-pocket expenses, and will indemnify MacKenzie Partners against
any losses arising out of MacKenzie Partners' proxy soliciting services on
behalf of Sync.
THE MATTERS TO BE CONSIDERED AT THE SYNC ANNUAL MEETING ARE OF GREAT
IMPORTANCE TO THE STOCKHOLDERS OF SYNC. ACCORDINGLY, STOCKHOLDERS ARE URGED TO
READ AND CAREFULLY CONSIDER THE INFORMATION PRESENTED IN THIS PROXY
STATEMENT/PROSPECTUS, AND TO COMPLETE, DATE, SIGN AND PROMPTLY RETURN THE
ENCLOSED PROXY IN THE ENCLOSED POSTAGE-PAID ENVELOPE.
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THE MERGER
The following discussion summarizes the material terms of the merger and the
merger agreement. Stockholders should read carefully the merger agreement, which
is attached as Annex A to this proxy statement/prospectus.
OWNERSHIP OF SYNC AND ENTRADA FOLLOWING THE MERGER; STOCK OPTIONS
Immediately following the merger, (i) Sync will own 100% of the issued and
outstanding shares of Entrada common stock, and (ii) the Parent will own between
approximately 56% and 64% of the issued and outstanding shares of Sync common
stock (includes the shares of Sync common stock owned by Parent on the record
date), together with any additional shares of Sync common stock which Parent may
acquire between the record date and the date of the merger. In addition, certain
employees of Entrada will be granted options to purchase shares of Sync common
stock which, in the aggregate, shall equal the number of shares of Sync common
stock issuable upon the exercise of all of the outstanding Sync options at the
time of the merger.
BACKGROUND TO THE MERGER
Business combinations have been a significant part of the networking
industry. From time to time, Sync has developed various corporate development
programs to review and evaluate potential business combinations, corporate
acquisition opportunities, strategic alliances, joint development programs and
other strategic transactions involving other participants in the networking,
communications and computer industries and related industries, with the aim of
obtaining and developing access to complementary technologies, products and
distribution channels. Over the past two years, Sync has actively searched for a
desirable business combination in an effort to maximize value to it
stockholders.
On May 27, 1999, as part of Sync's corporate development efforts, Sync's
president and chief executive officer, Dick Martin, and chairman of the board,
Gregorio Reyes, met with a representative of Alliant Partners and discussed
various strategic alternatives for Sync. On June 7, 1999, Sync engaged Alliant
Partners to search for strategic alternatives for Sync.
Upon commencing the assignment, Alliant prepared a package of information
regarding Sync, as well as a prospect list of thirty-one potential merger
partners. Contacts were made with each of these thirty-one companies over the
subsequent thirty day period. Of the thirty-one companies contacted, eleven
requested that Alliant provide additional information regarding Sync. Meetings
were subsequently held with five of the target companies during the months of
July and August.
During the month of July 1999, Sync senior management met with Par Chadha,
the then current chairman, president and chief executive officer of Parent, and
Leonard Hecht, a director of Parent, to discuss the possibility of a business
combination between the two companies. In connection with such meeting, Sync and
Parent signed a non-disclosure agreement.
On July 27, 1999, the Sync board of directors held a regular meeting. During
that meeting, the Sync board and management discussed various strategic issues
and the status of Sync's operations. In addition, the Sync board received a
status report from Alliant Partners on its progress to find a suitable strategic
alternative for Sync.
During the months of July and August, 1999, no further meetings with
additional prospects were scheduled, and all of the prospects except Entrada
indicated that they did not have any interest in proceeding with a transaction.
While Entrada did indicate some interest in a transaction with Sync,
representatives of Entrada only indicated interest in a merger.
On August 28, 1999, Alliant reported to senior management of Sync that it
appeared unlikely that a transaction could be consummated with a larger company
that would provide liquidity to Sync's
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stockholders, or other usual and customary benefits such as a premium to market.
Based on market conditions, Alliant recommended that discussions be held with
Entrada, while an additional thirteen prospects, consisting of large networking
companies, were contacted regarding a potential business combination with Sync.
On October 20, 1999, members of Sync's senior management and board of
directors met with members of Parent's senior management and board to discuss
whether a strategic combination of Sync and Entrada or other alternative would
be feasible and the possible framework for such a transaction.
On November 1, 1999, Mr. Reyes and Mr. Guerry met with Mr. Par Chadha and
other representatives of Entrada to conduct further discussions regarding the
framework and structure for such a strategic combination of the two companies.
It was mutually agreed that Sync's board would formally consider a merger of
Sync and Entrada at its next board meeting.
On November 15-16, 1999, members of Sync's executive management met with
Mr. Par Chadha and representatives of Entrada and Parent to review all
significant aspects of Entrada's operations including, but not limited to,
research and development projects, sales channels and customer relationships,
financial statements, product offerings and personnel.
During the months of September, October and November 1999, Alliant made
contact with the other thirteen prospects previously identified and was unable
to generate any interest in a transaction for Sync that would provide either
cash or a highly liquid security for Sync's stockholders.
On December 16, 1999, the Sync board of directors held a regular meeting.
During that meeting, the Sync board, its management and representatives of
Alliant Partners discussed the general terms of the proposed merger and the
assessment of Sync's management of Entrada's network access business. At that
meeting, it was determined that the terms of the proposed merger were not
acceptable and Alliant, accordingly, informed Parent that Sync was not
interested in completing the merger as proposed. The board, however, indicated
its agreement that a merger with an acceptable valuation should be considered.
On January 14, 2000, the president and chief executive officer of Parent
called Alliant Partners to reengage in further discussions with revised terms
and an acceptable valuation. Based on a series of discussions between
representatives of Alliant Partners and Parent, an agreement in principal was
reached to pursue a transaction between Sync and Entrada on a basis under which
the current Sync stockholders would own 50% of Sync following the proposed
merger.
Between February 1, 2000 and April 9, 2000, the parties and their respective
financial and legal advisors conducted intensive on- and off-site due diligence
reviews and held numerous meetings and discussions regarding possible terms and
structures for the proposed combination. As part of their due diligence, each
party reviewed public and non-public documents and information of the other
party and heard presentations by representatives of the other party.
On February 11, 2000, a draft of the merger agreement was provided by
Greenbaum, Rowe, Smith, Ravin, Davis & Himmel, LLP, legal counsel for Parent, to
Sync. From February 11 through April 10, 2000, representatives of Sync and
Parent and their respective legal advisors held numerous meetings and
discussions regarding the terms of the proposed combination.
On March 22, 2000, senior management of Sync met with personnel of Parent to
discuss the sales outlook for Sync and Entrada, respectively.
On April 7, 2000 and April 10, 2000, the Sync board of directors met to
review the proposed transaction and alternative business strategies. At the
meeting, Sync management, Alliant Partners and Orrick, Herrington, & Sutcliffe,
LLP each made presentations to the Sync board, and copies of the draft merger
agreement and other pertinent information were distributed to the Sync board.
After discussing the terms of the proposed transaction, the Sync board voted at
the April 10 meeting to give
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approval to the combination of Sync and Entrada on the terms set forth in the
then current draft of the merger agreement.
On April 11, 2000, following the execution and delivery of the merger
agreement, Sync and Parent issued a joint press release announcing the merger.
On July 24, 2000 the Sync Board of Directors approved an amendment to the
merger agreement to provide for the issuance of additional shares of Sync common
stock to Parent in consideration of Parent providing additional cash funding to
Entrada prior to the closing of the merger. The minimum number of additional
shares to be issued is 1,000,000 and the maximum number is 3,000,000. Effective
August 2, 2000, Sync and Parent amended the merger agreement.
REASONS FOR THE MERGER AND BOARD OF DIRECTORS RECOMMENDATION
REASONS FOR THE MERGER. In reaching its decision to approve the merger
agreement and the merger and to recommend that Sync stockholders approve the
issuance of shares of Sync common stock in connection with the merger, the Sync
board of directors consulted with its management team and advisors and
independently considered the proposed merger agreement and the transactions
contemplated by the merger agreement. The following discussion of the factors
considered by the Sync board of directors in making its decision is not intended
to be exhaustive but includes all material factors considered by the Sync board
of directors.
The Sync board of directors considered the following factors as reasons that
the merger will be beneficial to Sync and its stockholders:
- the opportunity to enter into the emerging and rapidly growing market for
storage area networking for which Entrada has already begun development of
product offerings
- the complementary nature of Sync's and Entrada's technologies and product
offerings across a range of products and possible synergies from combining
Sync and Entrada
- the opportunity for Sync to distribute its products through Entrada's more
established reseller and distribution channels
- the potential of the combined companies to deliver more complete network
access solutions to customers across the local and wide area networks, and
to develop products in new high growth technologies and markets, including
storage networking, with enhanced network manageability and reduced costs
- the potential of the combined companies to achieve operational
efficiencies and other synergies including improved manufacturing capacity
utilization, procurement savings, corporate overhead reductions and other
cost savings
- the terms and conditions of the merger agreement, including the ability of
the Sync board of directors to consider other nonsolicited strategic
transaction proposals prior to the closing of the merger
- detailed financial analysis and pro forma and other information with
respect to the companies presented by Alliant Partners to the Sync board
of directors, including Alliant Partner's opinion that the consideration
to be received by Sync stockholders pursuant to the exchange ratio in the
merger is fair to the Sync stockholders from a financial point of view.
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In the course of deliberations, the Sync board of directors also considered
a number of additional factors relevant to the merger, including:
- information relating to the business, assets, management, competitive
position, financial performance and condition, technology, trading
performance and prospects of each of Sync and Entrada before and after
giving effect to the merger
- current industry, market and economic conditions
- the belief that the terms of the merger agreement, including the parties'
representations, warranties and covenants, and the conditions to their
respective obligations, are reasonable
- the prospects of Sync if it were to continue as an independent company
- the potential for other third parties to enter into strategic
relationships with or to acquire Sync
- the impact of the merger on Sync's and Entrada's customers, suppliers and
employees
- reports from Sync management and from legal and financial advisors as to
the results of their due diligence investigations of Entrada
- the likelihood that the merger would be completed.
The Sync board of directors also identified and considered a number of
potentially negative factors in its deliberations concerning the merger,
including but not limited to:
- the risk that the potential benefits sought in the merger might not be
fully realized
- the possibility that the merger might not be consummated
- the risk that the issuance of Sync common stock in the merger could be
dilutive to current Sync stockholders
- the effect of the public announcement of the merger on (a) demand for the
products and services of Sync, its customer relations, its operating
results and its stock price, and (b) the ability of Sync to attract and
retain key management, account managers, network engineers and other
personnel
- the substantial charges to be incurred in connection with the merger,
including costs of integrating the businesses and transaction expenses
from the merger
- the risk that despite the efforts of the combined companies, key
management and other personnel might not remain employed by the combined
companies
- risks associated with fluctuations in Sync's stock price prior to the
closing of the merger
- various other risks.
The foregoing discussion is not exhaustive of all factors considered by
Sync's board of directors. The Sync board of directors believed that certain
risks were unlikely to occur, that Sync could avoid or mitigate others, and
that, overall, these risks were outweighed by the potential benefits of the
merger.
In view of the variety of factors considered in connection with its
evaluation of the merger agreement and the merger, the Sync board of directors
did not find it practicable to and did not quantify or otherwise assign relative
weight to the specific factors considered in reaching its determination. In
addition, individual members of the Sync board of directors may have given
different weight to different factors.
RECOMMENDATION OF THE SYNC BOARD OF DIRECTORS. After careful consideration,
the Sync board of directors has unanimously determined that the terms of the
merger agreement and the merger are fair to, and in the best interests of, the
stockholders of Sync and has approved the merger agreement and
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the merger. The Sync board of directors recommends that the stockholders of Sync
vote "for" the proposal to authorize the issuance of Sync common stock under the
merger agreement and change the name of Sync to Entrada Networks, Inc. for
completion of the merger.
FAIRNESS OPINION OF FINANCIAL ADVISOR
Pursuant to an engagement letter dated June 7, 1999, Sync retained Alliant
Partners to render an opinion regarding the fairness, from a financial point of
view, of the merger to the Sync stockholders.
On April 10, 2000, in a 5:00 a.m. PST conference call, the Sync board of
directors met and approved the merger. At this meeting and during the previous
board meeting on Friday, April 7, 2000, Alliant Partners delivered to the Sync
board of directors its opinion by teleconference (the "Alliant Opinion") that as
of April 10, 2000, and based on the matters described therein, the transaction
was fair, from a financial point of view, to the Sync stockholders. Alliant
Partners noted that its presentation on the financial terms of the merger was
based on the closing stock prices and general market conditions as of April 7,
2000. No limitations were imposed by Sync on the scope of Alliant Partners'
investigations or the procedures to be followed by Alliant Partners in rendering
the Alliant Opinion. The exchange ratio was determined through negotiations
between the management of Sync and Parent. In furnishing the Alliant Opinion,
Alliant Partners was not engaged as an agent or fiduciary of Sync's stockholders
or any other third party.
The full text of the Alliant Opinion, which sets forth, among other things,
assumptions made, matters considered and limitations on the review undertaken,
is attached hereto as Annex B and is incorporated herein by reference.
STOCKHOLDERS OF SYNC ARE URGED TO READ THE ALLIANT OPINION IN ITS ENTIRETY. THE
ALLIANT OPINION WAS PREPARED FOR THE BENEFIT AND USE OF THE SYNC BOARD OF
DIRECTORS IN ITS CONSIDERATION OF THE MERGER AND DOES NOT CONSTITUTE A
RECOMMENDATION TO STOCKHOLDERS OF SYNC AS TO HOW THEY SHOULD VOTE AT THE ANNUAL
MEETING IN CONNECTION WITH THE MERGER. The Alliant Opinion does not address the
relative merits of the merger and any other transactions or business strategies
discussed by the Sync board of directors as alternatives to the merger agreement
or, except with respect to the fairness of the exchange ratio, from a financial
point of view, to the holders of Sync common stock, the underlying business
decision of the Sync board to proceed with or effect the merger. The summary of
the Alliant Opinion set forth in this proxy statement/prospectus is qualified in
its entirety by reference to the full text of the Alliant Opinion.
In connection with the preparation of the Alliant Opinion, Alliant Partners,
among other things, engaged in the following activities: reviewed the terms of
the Agreement and Plan of Merger dated April 10, 2000 and the associated
exhibits thereto; reviewed the Sync Form 10-K for the fiscal years ended
December 1998 and 1999, including the audited financial statements included
therein; reviewed certain internal financial and operating information relating
to Sync prepared by Sync management; participated in discussions with Sync
management concerning the operations, business strategy, financial performance
and prospects for Sync; reviewed the recent reported closing prices and trading
activity for Sync common stock; compared certain aspects of the financial
performance and business strategy of Sync and Entrada with comparable public
companies; analyzed available information, both public and private, concerning
other mergers and acquisitions comparable in whole or in part to the merger;
reviewed Form 10-Q for the period ending October 31, 1999, Forms 10-K for 1998,
1997 and 1996, and several Forms 8-K of Parent; participated in discussions with
management of Parent concerning the operations, business strategy, financial
performance and prospects for Entrada and its strategic rationale for the
merger; reviewed the recent reported closing prices and trading activity for the
common stock of Parent; reviewed recent equity analyst reports covering
Entrada's business sector and Parent; considered the effect of the merger on the
future financial performance of the consolidated entity; participated in
discussions related to the merger among Parent, Sync, and their respective
financial and legal advisors; and conducted other financial studies, analyses
and investigations as Alliant Partners deemed appropriate for purposes of
rendering the Alliant Opinion.
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In conducting its review and rendering the Alliant Opinion, Alliant Partners
relied upon and assumed the accuracy and completeness of the financial
statements and other information provided by Sync and Parent or otherwise made
available to Alliant Partners and did not assume responsibility independently to
verify such information. Alliant Partners further relied upon the assurances of
Parent's and Sync's management that the information provided was prepared on a
reasonable basis in accordance with industry practice, that with respect to
financial planning data, the information provided reflected the best currently
available estimates and good faith judgments of Parent's and Sync's management
as to the expected future financial performance of Sync and Entrada, and that
such parties were not aware of any information or facts that would make the
information provided to Alliant Partners incomplete or misleading. Without
limiting the generality of the foregoing, for the purpose of the Alliant
Opinion, Alliant Partners assumed that neither Sync nor Entrada was a party to
any pending transaction, including external financing, recapitalizations,
acquisitions or merger discussions, other than the merger or in the ordinary
course of business. Alliant Partners also assumed that the merger would be free
of federal tax to the Sync stockholders.
In arriving at the Alliant Opinion, Alliant Partners did not perform any
appraisals or valuations of specific assets or liabilities of Sync or Entrada
and was not furnished with any such appraisals or valuations.
Without limiting the generality of the foregoing, Alliant Partners did not
undertake any independent analysis of any pending or threatened litigation,
possible unasserted claims or other contingent liabilities, to which Sync,
Entrada, Parent or any of their respective affiliates was a party or may be
subject and, at Sync's direction and with its consent, the Alliant Opinion made
no assumption concerning, and therefore did not consider, the possible assertion
of claims, outcomes or damages arising out of any such matters. Although
developments following the date of the Alliant Opinion may affect the Alliant
Opinion, Alliant Partners assumed no obligation to update, revise or reaffirm
the Alliant Opinion.
Following is a summary explanation of the various sources of information and
valuation methodologies employed by Alliant Partners in conjunction with
rendering its opinion to the Sync board of directors.
COMPARABLE COMPANY ANALYSIS
Alliant Partners compared certain financial information and valuation ratios
relating to Entrada to corresponding publicly available data and ratios from a
group of selected publicly traded companies deemed comparable to Entrada at the
time. The comparable companies selected included twenty-two publicly traded
companies in the business of telecommunications and networking. The following
financial information was reviewed by Alliant Partners for each selected
company: Enterprise Value, calculated as the market capitalization of the
selected company, plus such company's debt, less such company's cash; Trailing
Twelve Months revenue, calculated as the most recent four quarters revenue as
filed with the Securities and Exchange Commission; Calendar Year 1999 Revenue;
Prior Year Revenue Growth Rate; and Current Year Revenue Growth Rate. The
companies assessed by Alliant Partners included: 3Com Corporation, ACT
Networks Inc., ADC Telecommunications, ADTRAN Inc., Asante Technologies Inc.,
Cabletron Systems Inc., Cisco Systems Inc., Digi International, Inc., General
DataComm Industries, Harris Corporation, Hypercom Corporation, Interphase
Corporation, Larscom Incorporated, Lucent Technologies Inc., Motorola Inc.,
Newbridge Networks Corp., Nortel Networks Corp., Paradyne Networks Inc.,
Verilink Corporation, Visual Networks Inc., Westell Technologies Inc. and
Xircom Inc.
The comparable companies had an Enterprise Value/TTM Revenue ratio range of
.5x to 35x with a weighted narrow average (narrow average excludes the highest
and lowest estimates) of 4.3x; Enterprise Value/TTM Earnings (where positive)
ratio range of 10.8x to 206x with a weighted narrow average of
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79x; (Enterprise Value/1 million)/Headcount ratio range of .2x to 20x with a
weighted narrow average of 1.2x. After making certain adjustments for
differences in liquidity, performance and size, this analysis yielded an implied
Entrada equity value of $32.1 million.
No company utilized as a comparison in the Comparable Company Analysis is
identical to Entrada or Sync. In evaluating the comparable companies, Alliant
Partners made judgments and assumptions with regard to industry performance,
general business, economic, market and financial conditions and other matters,
many of which are beyond the control of Entrada or Sync.
COMPARABLE TRANSACTION ANALYSIS
Alliant Partners reviewed twenty-three comparable merger and acquisition
transactions from November 1998 through April 2000, which involve sellers
sharing many characteristics with Entrada including revenue size, products
offered and business model. These comparable transactions of companies in the
telecommunications and networking sectors are: ADC Telecommunications, Inc.'s
acquisition of PairGain Technologies, Inc.; Lucent Technologies Inc.'s
acquisition of Ortel Corp.; Cisco Systems Inc.'s acquisition of Pirelli Optical
Systems; Westell Technologies Inc.'s acquisition of Teltrend, Inc.; Cisco
Systems Inc.'s acquisition of Aironet Wireless Communications Inc.; Zhone
Technologies Inc.'s acquisition of Premisys Communications, Inc.; Alcatel SA's
acquisition of Genesys Telecommunications Laboratories Inc.; Motorola Inc.'s
acquisition of General Instrument Corp.; DLZ Corp.'s acquisition of Digital Link
Corp. (Quick Eagle Networks); Cisco Systems Inc.'s acquisition of Monterey
Networks; Nortel Networks Corp.'s acquisition of Periphonics Corp.; Lucent
Technologies Inc.'s acquisition of Excel Switching Corp.; Lucent
Technologies Inc.'s acquisition of Nexabit Networks Inc.; Newbridge Networks
Corp.'s acquisition of Stanford Telecommunications Inc.; ADC
Telecommunications Inc.'s acquisition of Saville Systems; Alcatel SA's
acquisition of XYLAN Corp.; 3COM Corp.'s acquisition of NBX Corp.; Verilink
Corp.'s acquisition of TXPORT, Inc.; Lucent Technologies Inc.'s acquisition of
Agere, Inc.; Cisco Systems Inc.'s acquisition of Altiga Networks; Cisco
Systems Inc.'s acquisition of Compatible Systems Corp.; Efficient Networks'
acquisition of FlowPoint Corporation; and Cisco Systems Inc.'s acquisition of
Tasmania Network Systems Inc.
The Price/Revenue multiples of the twenty-three transactions range from .27x
to 55x with a weighted average of 12x. The Price/Earnings ratio ranged from a
negative 506x to 339x, with a narrow average of 13x. This was not a meaningful
multiple as Entrada had negative earnings. The Price/ Headcount multiple ranged
from .05x to 19x, with the narrow average of 3x. The Comparable Transaction
Analysis yielded an implied Entrada equity value of $87.2 million.
Estimated multiples paid in the comparable transactions were based on
information obtained from public filings, public company disclosures, press
releases, industry and popular press reports, research reports, databases and
other sources. No company, transaction or business used in the Comparable
Company Analysis or Comparable Transaction Analysis as a comparison is identical
to Entrada or the merger. Accordingly, an analysis of the results of the
foregoing is not entirely mathematical; rather it involves complex
considerations and judgments concerning differences in financial and operating
characteristics and other factors that could affect the acquisition, public
trading and other values of the comparable companies, comparable transactions or
the business segment, company or transactions to which they are being compared.
COMPARISON OF ENTRADA WITH SYNC RESEARCH
Alliant Partners evaluated Sync and Entrada in terms of business strategy,
business performance and various financial metrics to determine the relative
value of each if the two companies were combined as one entity. Financial
metrics included a comparison of revenues, EBIT, earnings, various margins,
assets, fixed assets, investment, employees, and growth rates. Based on this
analysis, Alliant Partners concluded that Entrada would represent on average a
49% share of the combined companies.
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ENTRADA AS A PERCENTAGE OF PARENT MARKET VALUATION
In this analysis, Alliant Partners evaluated Entrada to determine its
percentage of the market valuation of Parent (NASDAQ: FIBR). In the months
preceding the transaction, Parent had seen its share price rise at an
exceptional rate, mainly due to the market appetite for Optical Networking
companies. To determine Entrada's share of the valuation of Parent, Alliant
Partners used a 20 day average share price of $105.51, (dates from March 13
through April 7, 2000) which translated to a market capitalization of
$1,052.59 million.
In determining the value of Entrada, Alliant Partners used three methods:
estimates from public investment research; percentage of revenues, based on the
Parent's management revenue estimates and industry growth rates; and a
conservative estimate of 1 X estimated fiscal year 2000 revenues. This analysis
produced an average value for Entrada of $37.1 million.
CONCLUSION
While the foregoing summary describes certain analyses and factors that
Alliant Partners deemed material in its presentation to the Sync board of
directors, it is not a comprehensive description of all analyses and factors
considered by Alliant Partners. The preparation of a fairness opinion is a
complex process that involves various determinations as to the most appropriate
and relevant methods of financial analysis and the application of these methods
to the particular circumstances and, therefore, such an opinion is not readily
susceptible to summary description. Alliant Partners believes that its analyses
must be considered as a whole and that selecting portions of its analyses and of
the factors considered by it, without considering all analyses and factors,
would create an incomplete view of the evaluation process underlying the Alliant
Opinion. Several analytical methodologies were employed and no one method of
analysis should be regarded as critical to the overall conclusion reached by
Alliant Partners. Each analytical technique has inherent strengths and
weaknesses, and the nature of the available information may further affect the
value of particular techniques. The conclusions reached by Alliant Partners are
based on all analyses and factors taken as a whole and also on application of
Alliant Partners' own experience and judgment. Such conclusions may involve
significant elements of subjective judgment and qualitative analysis. Alliant
Partners therefore gives no opinion as to the value or merit standing alone of
any one or more parts of the analysis it performed. In performing its analyses,
Alliant Partners considered general economic, market and financial conditions
and other matters, many of which are beyond the control of Sync and Entrada. The
analyses performed by Alliant Partners are not necessarily indicative of actual
values or future results, which may be significantly more or less favorable than
those suggested by such analyses. Accordingly, analyses relating to the value of
a business do not purport to be appraisals or to reflect the prices at which the
business actually may be purchased. Furthermore, no opinion is being expressed
as to the prices at which shares of Sync common stock may trade at any future
time.
Pursuant to an engagement letter dated June 7, 1999, Alliant Partners
received a fee of $100,000 for the fairness opinion rendered to the Sync board
or directors. Sync has also agreed to reimburse Alliant Partners for its out of
pocket expenses and to indemnify and hold harmless Alliant Partners and its
affiliates and any person, director, employee or agent acting on behalf of
Alliant Partners or any of its affiliates, or any person controlling Alliant
Partners or its affiliates, for certain losses, claims, damages, expenses and
liabilities relating to or arising out of services provided by Alliant Partners
as financial advisor to Sync. The terms of the fee arrangement with Alliant
Partners, which Sync and Alliant partners believe are customary in transactions
of this nature, were negotiated at arm's length between Sync and Alliant
Partners, and the Sync board was aware of such fee arrangements.
Alliant Partners was retained based on Alliant Partners' experience as a
financial advisor in connection with mergers and acquisitions and in securities
valuations generally, as well as Alliant
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Partners' investment banking relationship and familiarity with Sync. Alliant
Partners has provided financial advisory and investment banking services to Sync
in the past.
As part of its investment banking business, Alliant Partners is frequently
engaged in the valuation of businesses and their securities in connection with
mergers and acquisitions, sales and divestitures, joint ventures and strategic
partnerships, private financings and other specialized studies.
PRIVATE PLACEMENT FINANCINGS; BRING-DOWN OF ALLIANT OPINION
Subsequent to the issuance of the initial fairness opinion by Alliant
Partners, Sync closed a private placement financing on May 12, 2000, in which
Entrada Holdings LLC ("Entrada Holdings"), an affiliate of Andersen, Weinroth &
Co., L.P., purchased 700,000 shares of Series A Preferred Stock from Sync for
approximately $3.19 per share, which was the average closing sale price of Sync
common stock for the ten days ended April 28, 2000. An affiliate of Entrada
Holdings is a shareholder of Parent. Sync raised a total of $2,235,625 in cash
in this private placement. The shares of Series A Preferred Stock are
convertible into shares of Sync common stock on a one-for-one basis, and will be
automatically converted into shares of Sync common stock on the closing of the
merger. Entrada Holdings may request that Sync register the shares of Sync
common stock issuable on the conversion of the Series A Preferred Stock on a
Form S-3 registration statement for resale in the public market at any time
after the earlier of: (i) ninety (90) days after the closing of the merger, or
(ii) May 12, 2001. If the merger is not completed by August 31, 2000, Entrada
Holdings will have the right to designate one member to Sync's board of
directors for so long as a specified percentage of the shares of Series A
Preferred Stock are outstanding. In connection with the private placement, Sync
paid a fee equal to five percent (5%) of the aggregate purchase price to
Andersen Weinroth Capital Corp., an investment firm affiliated with Andersen,
Weinroth & Co., L.P. and Entrada Holdings. Rohit Phansalkar, the Chairman of the
Board, Chief Executive Officer and a director of Parent is a former partner of
Andersen Weinroth & Co. LP.
After careful consideration, the management of Sync has determined that,
notwithstanding the fact that the merger consideration payable by Sync to Parent
will increase by an additional 700,000 shares of Sync common stock as a result
of the private placement, the terms of the merger agreement and the merger
remain fair to, and in the best interests of, the stockholders of Sync. Alliant
Partners has provided Sync with an updated opinion (the "Bring-Down Alliant
Opinion"), subsequent to the closing of the private placement financing and the
amendment and restatement of the merger agreement, to supplement its initial
opinion regarding the fairness, from a financial point of view, of the merger to
the Sync stockholders. In preparing the Bring-Down Alliant Opinion, Alliant
Partners revisited its initial valuation methodology and performed an updated
analysis taking strategic, industry and market developments into consideration.
In addition, Alliant Partners re-evaluated the terms of the merger agreement and
the value of the shares paid by Sync for Entrada subsequent to the private
placement financing as described above. Alliant Partners delivered to the Sync
board of directors the Bring-Down Alliant Opinion, dated August 2, 2000,
confirming that subsequent to the private placement financing described above
and the amendment and restatement of the merger agreement, the merger
transaction remains fair, from a financial point of view, to the Sync
stockholders. The full text of the Bring-Down Alliant Opinion is attached hereto
as Annex C and is incorporated herein by reference. STOCKHOLDERS OF SYNC ARE
URGED TO READ THE BRING-DOWN ALLIANT OPINION IN ITS ENTIRETY. THE BRING-DOWN
ALLIANT OPINION WAS PREPARED FOR THE BENEFIT AND USE OF THE SYNC BOARD OF
DIRECTORS AND DOES NOT CONSTITUTE A RECOMMENDATION TO STOCKHOLDERS OF SYNC AS TO
HOW THEY SHOULD VOTE AT THE ANNUAL MEETING IN CONNECTION WITH THE MERGER. The
summary of the Bring-Down Alliant Opinion set forth in this proxy
statement/prospectus is qualified in its entirety by reference to the full text
of the Bring-Down Alliant Opinion.
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INTERESTS OF SYNC DIRECTORS AND MANAGEMENT IN THE MERGER
In considering the recommendation of the Sync board of directors in favor of
the merger proposals, stockholders of Sync should be aware that members of the
Sync board of directors and executive officers of Sync have interests in the
merger that are different from, or in addition to, the interests of stockholders
of Sync. Such interests relate to or arise from, among other things:
- all executive officers of Sync are parties to agreements that provide for
the partial vesting of any unvested options upon a change in control and
certain severance benefits if such executive officer is terminated
following a corporate transaction such as the merger
- Mr. Gregorio Reyes, the current Chairman of the Sync board of directors,
will remain as a director of Sync following the merger, and certain
current executive officers of Sync will remain as executives of Sync
following the merger
- Mr. Reyes is party to an agreement that provides for the full vesting of
any unvested options upon a change in control and certain severance
benefits if he is terminated following a corporate transaction such as the
merger.
Each of these additional interests are described below, to the extent
material, and except as described below these individuals have, to the knowledge
of Sync and Entrada, no material interest in the merger apart from those of
stockholders generally. The Sync board of directors was aware of, and considered
the interests of, their directors and executive officers in approving the merger
agreement and the merger.
BOARD OF DIRECTORS. Upon consummation of the merger, the board of directors
of Sync intends to increase the number of directors who sit on the board from
four to five, and to appoint Dr. Kanwar J.S. Chadha, currently the President and
Chief Executive Officer of Entrada and the intended President and Chief
Executive Officer of Sync following the merger, to fill such created vacancy.
Further, it is the present intention of Sync and Entrada to have Messrs. Guerry
and Schroeder step down from the board upon consummation of the merger, and be
replaced by Leonard N. Hecht, currently a director of Parent, and Rohit
Phansalkar, currently a director, Chairman of the Board and Chief Executive
Officer of Parent and a former partner of Andersen, Weinroth & Co., L.P. Entrada
Holdings, an affiliate of Andersen, Weinroth & Co., L.P. owns all of the
outstanding Series A Preferred Stock of Sync. Another affiliate of Andersen,
Weinroth & Co., L.P. is a stockholder of Parent. Therefore, assuming that the
Sync stockholders authorize the issuance of Sync common stock under the merger
agreement for completion of the merger and elect the slate of directors that the
Sync board of directors has nominated, the board of directors of Sync following
the merger will consist of Gregorio Reyes, currently the Chairman of Sync's
board of directors, Dr. Chadha, Charles A. Haggerty, currently a director of
Sync, Mr. Hecht and Mr. Phansalkar.
EXECUTIVE OFFICERS. The Chief Executive Officer of Sync following the
merger will be Dr. Kanwar J.S. Chadha, who is currently the President of
Entrada. William K. Guerry, currently the Chief Executive Officer, President and
Chief Financial Officer of Sync, will be the Chief Operating Officer, Chief
Financial Officer and Vice President-Finance and Administration of Sync
following the merger. Anand Mehta, currently the Chief Technology Officer and
Vice President-Engineering of Entrada, will be the Chief Technology Officer and
Vice President-Engineering of Sync following the merger. Arthur Trakas,
currently the Executive Vice President-Sales and Marketing of Parent and
Entrada, will be the Vice President-Sales of Sync following the merger.
CHANGE IN CONTROL AGREEMENTS. Between October 1997 and January 2000, Sync
entered into change in control agreements with all of the executive officers and
the Chairman of the board of Sync. Pursuant to these agreements, 50% (100% in
the case of Mr. Reyes) of each officer's unvested options
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will become fully vested as a result of the merger. In addition, if the
employment of any officer is terminated within one year of the merger other than
for cause, the officer will become entitled to
- an amount equal to 100% of his annual salary, payable monthly for twelve
months (twenty-four months in the case of the Chief Executive Officer)
following the date of termination
- continued health, dental and life insurance coverage for twelve months
- have all remaining unvested Sync stock options vest at the same monthly
rate as prior to the merger and in accordance with the applicable stock
option plan.
ACCOUNTING TREATMENT
The merger will be accounted for as an acquisition of Sync by Entrada under
the "purchase" method of accounting in accordance with generally accepted
accounting principles.
APPRAISAL RIGHTS
Holders of Sync common stock and Series A Preferred Stock are not entitled
to dissenters' appraisal rights under Section 262 of the Delaware General
Corporation Law with respect to the merger or the proposals to be considered at
the Sync annual meeting.
FORM OF THE MERGER; NAME CHANGE
Subject to the terms and conditions of the merger agreement and in
accordance with Delaware law, at the effective time of the merger, Merger Co., a
wholly-owned subsidiary of Sync formed for the purpose of the merger, will merge
with and into Entrada. Entrada will survive the merger as a wholly-owned
subsidiary of Sync. Sync will change its name to "Entrada Networks, Inc."
MERGER CONSIDERATION
At the effective time of the merger, each outstanding share of Entrada
common stock will be converted into the right to receive shares of Sync common
stock, except that treasury stock and stock held by Entrada or any subsidiary of
Entrada will be canceled. As of the effective time of the merger, all shares of
Entrada common stock will no longer be outstanding and will automatically be
canceled and will cease to exist and each holder of a certificate representing
any shares of Entrada common stock will cease to have any rights as a
stockholder except the right to receive Sync common stock in the merger. The
exchange ratio was determined through arm's-length negotiations between Sync and
Parent.
CONVERSION OF SHARES
The conversion of Entrada common stock into the right to receive Sync common
stock will occur automatically at the effective time of the merger. After the
effective time of the merger, each certificate that previously represented
shares of Entrada common stock will represent only the right to receive the Sync
common stock into which such shares were converted in the merger. All shares of
Sync common stock issued upon conversion of shares of Entrada common stock will
be issued in full satisfaction of all rights relating to such shares of Entrada
common stock.
EFFECTIVE TIME OF THE MERGER
The merger will become effective upon the filing of the certificate of
merger with the Delaware Secretary of State or such later time as is agreed upon
by Sync and Entrada and specified in the certificate of merger. The filing of
the certificate of merger will occur as soon as practicable, but no later than
the second business day, after satisfaction or waiver of the conditions to the
completion of
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the merger described in the merger agreement unless another date is agreed to in
writing by Sync and Entrada.
STOCK EXCHANGE LISTING OF SYNC COMMON STOCK
It is a condition to the completion of the merger that the Sync common stock
issuable in the merger be approved for listing on the Nasdaq National Market,
subject to official notice of issuance.
MATERIAL UNITED STATES FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER
The following are the material United States federal income tax consequences
of the merger to Sync and the Sync stockholders. The following discussion is
based on and subject to the Internal Revenue Code of 1986, its legislative
history, applicable Treasury regulations, administrative rulings and court
decisions currently in effect, all of which are subject to change at any time,
possibly with retroactive effect. For United States federal income tax purposes,
regardless of whether the merger will be treated as a reorganization within the
meaning of Section 368(a) of the Internal Revenue Code, no gain or loss will be
recognized by Sync or the Sync stockholders as a result of the merger.
REGULATORY MATTERS
UNITED STATES ANTITRUST. Under the Hart-Scott-Rodino Act and related rules,
certain transactions, including the merger, may not be completed unless certain
waiting period requirements have been satisfied. Sync and Entrada each filed a
Notification and Report Form with the Antitrust Division of the Department of
Justice and the Federal Trade Commission. On July 18, 2000, Sync and Entrada
were notified by the Federal Trade Commission that the request for early
termination of the waiting period was granted effective July 3, 2000. At any
time before or after the effective time of the merger, the Antitrust Division,
the Federal Trade Commission or others could take action under the antitrust
laws, including seeking to prevent the merger, to rescind the merger or to
conditionally approve the merger upon the divestiture of substantial assets of
Sync or Entrada. There can be no assurance that a challenge to the merger on
antitrust grounds will not be made or, if such a challenge is made, that it
would not be successful.
GENERAL. It is possible that any of the governmental entities with which
filings are made may seek, as conditions for granting approval of the merger,
various regulatory concessions. There can be no assurance that:
- Sync or Entrada will be able to satisfy or comply with such conditions
- compliance or non-compliance will not have adverse consequences for Sync
after completion of the merger
- the required regulatory approvals will be obtained within the time frame
contemplated by Sync and Entrada and referred to in this proxy
statement/prospectus or on terms that will be satisfactory to Sync and
Entrada.
See "The Merger Agreement--Conditions to the Completion of the Merger."
RESALE OF SYNC COMMON STOCK
Sync common stock issued in the merger to Parent will not be subject to any
restrictions on transfer arising under the Securities Act of 1933, except that
because Parent will be an "affiliate" of Sync under the Securities Act, the Sync
common stock issued to Parent as a result of the merger may be resold by Parent
only in transactions permitted by the resale provisions of Rule 144 under the
Securities Act or as otherwise permitted under the Securities Act.
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THE MERGER AGREEMENT
THE FOLLOWING IS A BRIEF SUMMARY OF CERTAIN PROVISIONS OF THE MERGER
AGREEMENT. STOCKHOLDERS SHOULD READ CAREFULLY THE MERGER AGREEMENT, A COPY WHICH
IS ATTACHED AS ANNEX A TO THIS PROXY STATEMENT/ PROSPECTUS.
CONDITIONS TO THE COMPLETION OF THE MERGER
Each party's obligation to effect the merger is subject to the satisfaction
or waiver of various conditions which include, in addition to other customary
closing conditions, the following:
- the shareholders of Sync having approved the merger
- the waiting period applicable to the merger under the Hart-Scott-Rodino
Act having expired or been terminated
- no injunction, writ, preliminary restraining order or other order in
effect of any nature issued by a United States federal or state court or
governmental authority of competent jurisdiction being in effect that
would prevent the completion of the merger
- the registration statement on Form S-4, of which this proxy
statement/prospectus forms a part, having become effective under the
Securities Act and not being the subject of any stop order or proceedings
seeking a stop order
- the shares of Sync common stock issuable to Parent in the merger having
been approved for listing on the Nasdaq National Market, subject to
official notice of issuance
- the representations and warranties of the other party set forth in the
merger agreement being true and correct as of April 10, 2000 and as of the
date on which the merger is to be completed as though made on and as of
the date on which the merger is to be completed, or, if such
representations and warranties expressly relate to an earlier date, then
as of such date
- the other party to the merger agreement having performed and complied in
all material respects with all agreements and obligations required to be
so performed and complied with by it under the merger agreement on or
prior to the date on which the merger is to be completed
- the other party having obtained all material orders, consents, approvals,
permits, authorizations, notices, declarations, filings, applications,
qualifications and registrations necessary to complete the merger or
continue the business of the combined companies after the merger
Sync can provide no assurance that all of the conditions precedent to the
merger will be satisfied or waived by the party permitted to do so. Sync cannot
at this point determine whether it would resolicit proxies in the event that it
decides to waive any of the items listed above. This decision would depend upon
the facts and circumstances leading to Sync's decision to complete the merger
and whether Sync believes there has been a material change in the terms of the
merger and its effect on Sync stockholders. In making its determination, Sync
would consider, among other factors, the reasons for the waiver, the effect of
the waiver on the terms of the merger, whether the requirement being waived was
necessary in order to make the deal fair to the stockholders from a financial
point of view, the availability of alternative transactions and the prospects of
Sync as an independent entity. If Sync determines that a waiver of a condition
would materially change the terms of the merger, including the expected
qualification of the merger as a reorganization within the meaning of
Section 368(a) of the Internal Revenue Code, it will resolicit proxies.
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NO SOLICITATION
The merger agreement provides that Sync, Parent and its subsidiaries, and
the officers, directors, employees or other agents of Sync, Parent and its
subsidiaries, will not, directly or indirectly:
- take any action to solicit, initiate or encourage any takeover proposal,
as described below
- engage in negotiations with, or disclose any nonpublic information
relating to Sync or Entrada to, or afford access to the properties, books
or records of Sync or Entrada to, any person that has advised Sync,
Entrada or Parent that it may be considering making, or that has made, a
takeover proposal.
The merger agreement further provides that the term "takeover proposal"
means any offer or proposal for, or any indication of interest in, a merger or
other business combination involving Sync or Entrada, or the acquisition of any
significant equity interest in, or a significant portion of the assets of, Sync
or Entrada, other than the merger contemplated by the merger agreement.
Notwithstanding the restrictions described above, if an unsolicited takeover
proposal, or an unsolicited written expression of interest that can reasonably
be expected to lead to a takeover proposal, shall be received by the board of
directors of Sync or Parent, then, to the extent the board of directors of such
company believes in good faith (after consultation with its financial advisor)
that such takeover proposal would, if accepted, result in a transaction more
favorable to such company's stockholders from a financial point of view than the
merger contemplated by the merger agreement (any such more favorable takeover
proposal being referred to in the merger agreement as a "superior proposal"),
and the board of directors of such company determines in good faith after
consultation with outside legal counsel that it is necessary for such board of
directors to evaluate the superior proposal in order to comply with its
fiduciary duties to stockholders, such company and its officers, directors,
employees, investment bankers, financial advisors, attorneys, accountants and
other representatives retained by it may provide relevant information and take
such other actions as are consistent with the fiduciary obligations of its board
of directors, and such actions shall not violate the merger agreement; PROVIDED,
HOWEVER, that Sync and Parent shall not, and shall not permit any of their
respective officers, directors, employees or other representatives to, agree to
or endorse any takeover proposal regarding Sync or Entrada unless Sync or Parent
shall have
- terminated the merger agreement; and
- agreed to pay to the other party, without interest, the sum of $1,000,000
no later than thirty days after the closing of the transaction resulting
from the superior proposal.
Each of Sync and Parent will promptly notify the other after receipt of any
takeover proposal or any notice that any person is considering making a takeover
proposal or any request for nonpublic information relating to Sync or Entrada or
for access to the properties, books or records of Sync or Entrada by any person
that has advised Sync or Parent that it may be considering making, or that has
made, a takeover proposal and will keep Sync or Parent, as applicable, fully
informed of the status and details of any such takeover proposal notice or
request.
TERMINATION
The merger agreement may be terminated and the merger may be abandoned at
any time prior to the effective time of the merger:
- by the mutual consent of Sync and Parent
- by Sync, if the merger has not been completed by September 15, 2000,
unless the failure of the merger to occur is due to (i) a material breach
by Sync of any of its representations or warranties contained in the
merger agreement, or (ii) the breach or failure of Sync to comply in
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all material respects with the agreements and covenants contained in the
merger agreement to be performed by Sync by September 15, 2000
- by Parent, if the merger has not been completed by September 15, 2000,
unless the failure of the merger to occur is due to (i) a material breach
by Entrada or Parent of any of their representations or warranties
contained in the merger agreement, or (ii) the breach or failure of
Entrada or Parent to comply in all material respects with the agreements
and covenants contained in the merger agreement to be performed by Entrada
or Parent by September 15, 2000
- by either Sync or Parent, if any court or governmental authority of
competent jurisdiction shall have issued an order, decree or ruling or
taken any other action restraining, enjoining or otherwise prohibiting the
merger and such order, decree or ruling or other action shall have become
final and nonappealable
- by either Sync or Parent, upon (i) receipt of an unsolicited proposal that
its board of directors determines in good faith to be superior to the
merger and (ii) agreement to pay to the other party, without interest, the
sum of $1,000,000 no later than thirty days after the closing of the
transaction resulting from the superior proposal
- by Sync, if the stockholders of Sync vote not to authorize the issuance of
Sync common stock for completion of the merger, provided that Sync pays
Parent a fee of $250,000 within thirty (30) days of such stockholder vote.
In the event of the termination of the merger agreement and the abandonment
of the merger by Sync or Parent, written notice of such termination must be
given to the other party.
CONDUCT OF ENTRADA'S BUSINESS PRIOR TO THE MERGER
Under the merger agreement, Parent has agreed that, except (i) as otherwise
expressly provided in the merger agreement or (ii) as consented to by Sync in
writing, from and after April 10, 2000 and until the effective time of the
merger, Parent and Entrada shall, and shall cause each of Entrada's subsidiaries
to:
- use all reasonable efforts consistent with good business judgment to
(i) preserve intact the present business organization of Entrada and its
subsidiaries and pay payables and collect receivables in a manner
consistent with past practice and otherwise operate Entrada and its
subsidiaries in the ordinary and regular course of business consistent
with past practice; (ii) maintain Entrada's and its subsidiaries' books
and records in accordance with past practices; (iii) keep available the
services of Entrada's and its subsidiaries' officers and employees; and
(iv) maintain satisfactory relationships with licensors, suppliers,
creditors, distributors, customers and others having material business
relationships with Entrada and its subsidiaries
- notify Sync of any change in the normal course of business or operations
of Entrada or its subsidiaries and of any governmental complaints,
investigations or hearings of which Entrada or its subsidiaries is
notified (or communications received by Entrada or its subsidiaries
indicating that the same may be contemplated), or the institution or
settlement of litigation or any claim, in each case involving Entrada or
its subsidiaries, and to keep Sync informed of such events;
- comply in all material respects with all applicable laws, including,
without limitation, applicable environmental laws.
In addition, under the merger agreement Entrada and Parent have agreed that,
except (i) as otherwise expressly provided in the merger agreement or (ii) as
consented to by Sync in writing, from
44
<PAGE>
and after April 10, 2000 and until the effective time of the merger, neither
Parent, Entrada nor any subsidiaries thereof shall:
- cause to be issued or sold any shares of capital stock or debt or equity
securities of Entrada or its subsidiaries or Entrada capital stock
equivalents or issue, grant or enter into any options, warrants, rights,
subscription agreements or commitments of any kind with respect thereto
- directly or indirectly cause to be purchased, redeemed or otherwise
acquired or disposed of any shares of capital stock of Entrada or its
subsidiaries
- declare, set aside or pay any dividend or other distribution
- reclassify, combine, split, subdivide or redeem, purchase or otherwise
acquire, directly or indirectly, any of its capital stock or any Entrada
capital stock equivalents, other than pursuant to Entrada stock option
plans in accordance with their terms as in effect on the date hereof
- permit or allow Entrada or its subsidiaries to borrow or agree to borrow
any funds or incur, whether directly or by way of guarantee, any
obligation for borrowed money, other than in the ordinary course of
business and consistent with past practice
- subject any of the assets of Entrada or any of its subsidiaries (real,
personal or mixed, tangible or intangible) to any encumbrance or otherwise
permit or allow the sale, lease, transfer or disposition of any assets of
Entrada or its subsidiaries (real, personal or mixed, tangible or
intangible), other than in the ordinary course of business and consistent
with past practice
- assume, guarantee, or otherwise become responsible for the obligations of,
or make any loans or advances to, any other individual, firm or
corporation
- waive or release any rights of material value, or cancel, compromise,
release or assign any material indebtedness owed to Entrada or its
subsidiaries or any material claims held by Entrada or its subsidiaries
- except for capital expenditures not to exceed $5,000, make any investment
or expenditure of a capital nature either by purchase of stock or
securities, contributions to capital, property transfer or otherwise
- enter into any new material line of business
- cancel or terminate any insurance policy naming Entrada or its
subsidiaries as a beneficiary or a loss payable payee
- enter into any collective bargaining agreements
- increase the compensation or fringe benefits of any of the officers or
directors of Entrada or any of its subsidiaries or, other than in
accordance with past practice, effect any material general increase in the
compensation or fringe benefits of the employees of Entrada or any of its
subsidiaries or pay or agree to pay any pension, retirement allowance, or
other benefit not required by any existing employee benefit plan or any
bonus to any such officers or employees, commit Entrada or any of its
subsidiaries to any employment agreement or employee benefit plan with or
for the benefit of any of Entrada's or its subsidiaries' officers or
employees or any other person, or alter, amend, terminate in whole or in
part, or curtail or permanently discontinue contributions to, any pension
plan or any other employee benefit plan
- except as may be required as a result of a change in law or in generally
accepted accounting principles, change any of the accounting practices or
principles used by Entrada or its subsidiaries
45
<PAGE>
- enter into or terminate any license, distributorship, dealer, sales
representative, joint venture, credit or similar agreement, or any
contract, agreement or transaction involving a total remaining commitment
of at least $25,000
- except as may be required by law, make any material tax election, make or
change any method of accounting with respect to taxes, file any amended
tax returns that may have a material adverse effect on the tax position of
Entrada or any of its subsidiaries or settle or compromise any material
federal, state, local or foreign tax liability
- enter into any "non-compete" or similar agreement
- amend the certificate of incorporation or bylaws of Entrada or any of its
subsidiaries
- take any action with knowledge that such action would reasonably be
expected to result in any of Sync's conditions to closing, as described in
the merger agreement, not being satisfied
- agree to do any of the foregoing.
CONDUCT OF SYNC'S BUSINESS PRIOR TO THE MERGER
Under the merger agreement, Sync has agreed that, except (i) as otherwise
expressly provided in the merger agreement or (ii) as consented to by Parent in
writing, from and after April 10, 2000 and until the effective time of the
merger Sync shall, and shall cause each of its subsidiaries to:
- use all reasonable efforts consistent with good business judgment to
(i) preserve intact the present business organization of Sync and its
subsidiaries and pay payables and collect receivables in a manner
consistent with past practice and otherwise operate Sync and its
subsidiaries in the ordinary and regular course of business consistent
with past practice; (ii) maintain Sync's and its subsidiaries' books and
records in accordance with past practices; (iii) keep available the
services of Sync's and its subsidiaries' officers and employees; and
(iv) maintain satisfactory relationships with licensors, suppliers,
creditors, distributors, customers and others having material business
relationships with Sync and its subsidiaries
- notify Entrada of any change in the normal course of business or
operations of Sync or its subsidiaries and of any governmental complaints,
investigations or hearings of which Sync or its subsidiaries is notified
(or communications received by Sync or its subsidiaries indicating that
the same may be contemplated), or the institution or settlement of
litigation or any claim, in each case involving Sync or its subsidiaries,
and to keep Entrada informed of such events
- comply in all material respects with all applicable laws, including,
without limitation, applicable environmental laws.
In addition, under the merger agreement Sync has agreed that, except (i) as
otherwise expressly provided in the merger agreement or (ii) as consented to by
Parent in writing, from and after April 10, 2000 and until the effective time of
the merger, neither Sync nor any of its subsidiaries shall:
- cause to be issued or sold any shares of capital stock or debt or equity
securities of Sync or its subsidiaries or Sync capital stock equivalents,
except for the exercise of outstanding stock options, or issue, grant or
enter into any options, warrants, rights, subscription agreements or
commitments of any kind with respect thereto, except in the ordinary
course to non-executive employees of Sync
- directly or indirectly cause to be purchased, redeemed or otherwise
acquired or disposed of any shares of capital stock of Sync or its
subsidiaries
- declare, set aside or pay any dividend or other distribution
46
<PAGE>
- reclassify, combine, split, subdivide or redeem, purchase or otherwise
acquire, directly or indirectly, any of its capital stock or any Sync
capital stock equivalents, other than pursuant to Sync stock option plans
in accordance with their terms as in effect on the date hereof
- permit or allow Sync or its subsidiaries to borrow or agree to borrow any
funds or incur, whether directly or by way of guarantee, any obligation
for borrowed money, other than in the ordinary course of business and
consistent with past practice
- subject any of the assets of Sync or any of its subsidiaries (real,
personal or mixed, tangible or intangible) to any encumbrance or otherwise
permit or allow the sale, lease, transfer or disposition of any assets of
Sync or its subsidiaries (real, personal or mixed, tangible or
intangible), other than in the ordinary course of business and consistent
with past practice
- assume, guarantee, or otherwise become responsible for the obligations of,
or make any loans or advances to, any other individual, firm or
corporation
- waive or release any rights of material value, or cancel, compromise,
release or assign any material indebtedness owed to Sync or its
subsidiaries or any material claims held by Sync or its subsidiaries
- except for capital expenditures in the ordinary course of business and
capital expenditures not to exceed $5,000, make any investment or
expenditure of a capital nature either by purchase of stock or securities,
contributions to capital, property transfer or otherwise
- enter into any new material line of business
- cancel or terminate any insurance policy naming Sync or its subsidiaries
as a beneficiary or a loss payable payee
- enter into any collective bargaining agreements
- increase the compensation or fringe benefits of any of the officers or
directors of Sync or any of its subsidiaries or, other than in accordance
with past practice, effect any material general increase in the
compensation or fringe benefits of the employees of Sync or any of its
subsidiaries or pay or agree to pay any pension, retirement allowance, or
other benefit not required by any existing employee benefit plan to any
such officers or employees, commit Sync or any of its subsidiaries to any
employment agreement or employee benefit plan with or for the benefit of
any of Sync's or its subsidiaries' officers or employees or any other
person, or alter, amend, terminate in whole or in part, or curtail or
permanently discontinue contributions to, any pension plan or any other
employee benefit plan
- except as may be required as a result of a change in law or in generally
accepted accounting principles, change any of the accounting practices or
principles used by Sync or its subsidiaries
- enter into or terminate any license, distributorship, dealer, sales
representative, joint venture, credit or similar agreement, or any
contract, agreement or transaction involving a total remaining commitment
of at least $25,000
- except as may be required by law, make any material tax election, make or
change any method of accounting with respect to taxes, file any amended
tax returns that may have a material adverse effect on the tax position of
Sync or any of its subsidiaries or settle or compromise any material
federal, state, local or foreign tax liability
- enter into any "non-compete" or similar agreement
- amend the certificate of incorporation or bylaws of Sync or any of its
subsidiaries
47
<PAGE>
- take any action with knowledge that such action would reasonably be
expected to result in any of Entrada's conditions to closing, as described
in the merger agreement, not being satisfied
- agree to do any of the foregoing.
AMENDMENT; WAIVER
Subject to applicable law
- the merger agreement may be amended by the parties in writing at any time,
except that after the merger agreement has been adopted by the
stockholders of Sync, no amendment may be entered into which requires
further approval by Sync stockholders unless such further approval is
obtained
- at any time prior to the effective time of the merger, a party may, by
written instrument signed on behalf of such party, waive inaccuracies in
representations and warranties of any other party contained in the merger
agreement or in any related document and except as provided in the merger
agreement, waive compliance by any other party with any agreements or
conditions in the merger agreement.
Under Section 251(d) of the Delaware General Corporation Law, no amendment
to the merger agreement made after the adoption of the merger agreement by the
stockholders of Sync may, without further stockholder approval, alter or change
the amount or kind of shares, securities, cash, property and/or rights to be
received by Sync stockholders in the merger, or alter or change any terms and
conditions of the merger agreement if such alteration or change would adversely
affect the holders of any class or series of stock of Sync.
FEES AND EXPENSES
Whether or not the merger is completed, all fees and expenses incurred in
connection with the merger and the merger agreement will be paid by the party
incurring such fees or expenses, except as otherwise provided in the merger
agreement.
REPRESENTATIONS AND WARRANTIES
The merger agreement contains customary representations and warranties by
Sync and Parent relating to, among other things:
- corporate organization and similar corporate matters
- capital structure
- authorization, execution, delivery, performance and enforceability of the
merger agreement and related matters
- financial statements
- no undisclosed liabilities
- compliance with applicable laws and required consents, approvals, orders
and authorizations of governmental authorities relating to the merger
agreement
- outstanding and pending material litigation
- good and valid title to assets
- absence of material changes or events
- filing of tax returns and payment of taxes
48
<PAGE>
- absence of changes in benefit plans, and matters relating to the Employee
Retirement Income Security Act
- labor relations
- intellectual property
- material contracts
- environmental matters
- insurance policies and any pending claims under such policies
- material customers and suppliers
- title to properties
- Investment Company Act status
- product liability claims
- financial books and records
- engagement and payment of fees of brokers, investment bankers, finders and
financial advisors
- documents filed by Sync with the Securities and Exchange Commission and
the accuracy of information contained in such documents
49
<PAGE>
COMPARATIVE STOCK PRICE DATA AND DIVIDEND HISTORY
Sync'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 Sync's common stock as reported in the Nasdaq National Market for the
periods indicated.
<TABLE>
<CAPTION>
HIGH LOW
-------- --------
<S> <C> <C>
2000
Q1........................................................ $ 5.41 $ 3.25
Q2........................................................ 4.75 1.75
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>
On April 10, 2000, the last trading day prior to the announcement by Sync
and Entrada that they had reached an agreement concerning the merger, the
closing sales price of Sync common stock as reported on the Nasdaq National
Market was $3.125 per share. On July 31, 2000, the closing sale price of Sync
common stock as reported on the Nasdaq National Market was $2.75 per share.
As of July 18, 2000, there were 214 stockholders of record of Sync common
stock, and Sync believes there were approximately 2,900 beneficial owners of
Sync common stock.
Following the merger, Sync common stock will continue to be traded on the
Nasdaq National Market. Sync is in the process of applying for a new trading
symbol to take effect upon the consummation of the merger.
Neither Sync nor Entrada has ever paid cash dividends on its capital stock.
Any future determination to pay cash dividends will be at the discretion of the
board of directors and will be dependent upon the combined companies' financial
condition, results of operations, capital requirements and such other factors as
the board of directors deems relevant.
50
<PAGE>
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION
The following unaudited pro forma condensed consolidated financial
statements assume the transaction between Sync and Entrada will be accounted for
as an acquisition of Sync by Entrada and are based upon the respective
historical financial statements and notes thereto of Entrada, which are included
in this proxy statement/prospectus, and the historical financial statements and
notes thereto of Sync, which are incorporated by reference in this proxy
statement/prospectus. The following Pro Forma Condensed Consolidated Statement
of Operations for the three months ended April 30, 2000 and fiscal year ended
January 31, 2000 present unaudited pro forma operating results for Entrada as if
the transaction between Entrada and Sync and Sync's May 2000 preferred stock
private placement had occurred as of the beginning of the periods presented. The
following Pro Forma Condensed Consolidated Balance Sheet presents the unaudited
pro forma financial condition of Entrada as if the merger, Sync's May 12, 2000
Series A preferred stock private placement had occurred as of April 30, 2000.
The unaudited pro forma adjustments are described in the accompanying notes. The
carrying values of Sync's net assets are assumed to equal their fair values for
purposes of these unaudited pro forma financial statements, unless indicated
otherwise in the accompanying notes. These values are subject to revision.
However, Sync management believes that any resulting adjustments will not have a
material effect on the financial position or results of operations.
The unaudited pro forma financial information presented does not consider
any future events which may occur after the merger. The unaudited pro forma
financial information presented does not attempt to quantify any operating
expense synergies or cost reductions of the consolidated operations of Sync and
Entrada that may be realized after the merger. The unaudited pro forma financial
information does not consider the incremental expense, capital or conversion
costs which may be incurred as a result of the merger.
THE UNAUDITED PRO FORMA FINANCIAL INFORMATION IS PRESENTED FOR INFORMATIONAL
PURPOSES ONLY AND IS NOT NECESSARILY INDICATIVE OF THE OPERATING RESULTS OR
FINANCIAL POSITION THAT WOULD HAVE OCCURRED HAD THE MERGER BEEN CONSUMMATED AT
THE DATES INDICATED, NOR IS IT NECESSARILY INDICATIVE OF FUTURE OPERATING
RESULTS OR FINANCIAL POSITION OF THE CONSOLIDATED COMPANIES FOLLOWING THE
MERGER.
These unaudited pro forma condensed consolidated financial statements should
be read in conjunction with, the historical consolidated financial statements
and the related notes thereto of Sync and Entrada.
51
<PAGE>
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
(IN THOUSANDS)
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA
------------------------------- --------------------------
SYNC RESEARCH, INC. ENTRADA
AS OF AS OF
MARCH 31, APRIL 30,
2000 2000 ADJUSTMENTS CONSOLIDATED
------------------- --------- ----------- ------------
<S> <C> <C> <C> <C>
Current Assets
Cash and cash equivalents............... $ 7,696 $ -- $ 5,361 $13,057
Accounts receivable, net................ 1,399 4,609 -- 6,008
Due from affiliate...................... -- 427 -- 427
Inventories, net........................ 5,184 3,486 -- 8,670
Prepaid expenses and other current
assets................................ 991 370 -- 1,361
-------- ------- -------- -------
Total current assets.................. 15,270 8,892 5,361 29,523
Furniture, fixtures and equipment, net.... 1,514 1,554 (1,633) 1,435
Other assets.............................. 55 1,075 -- 1,130
-------- ------- -------- -------
Total assets.............................. $ 16,839 $11,521 $ 3,728 $32,088
======== ======= ======== =======
Current Liabilities
Bank overdraft.......................... $ -- $ 176 $ -- $ 176
Accounts payable........................ 1,702 2,786 1,000 5,488
Accrued compensation and benefits....... 502 1,231 -- 1,733
Deferred revenue and customer
deposits.............................. 2,082 393 -- 2,475
Other accrued liabilities............... 283 1,434 -- 1,717
Short-term debt......................... -- 2,198 -- 2,198
Current portion of capitalized lease
obligations........................... 36 301 337
-------- ------- -------- -------
Total current liabilities............. 4,605 8,519 1,000 14,124
Capitalized lease obligations and
long-term debt.......................... 9 252 -- 261
Amount due to Parent...................... -- 24,523 (24,523) --
Stockholders' Equity
Common stock............................ 4 1 4 9
Additional paid-in capital.............. 72,017 5,761 (32,549) 45,229
Accumulated deficit..................... (59,796) (27,535) 59,796 (27,535)
-------- ------- -------- -------
Total stockholders' equity
(deficit)........................... 12,225 (21,773) 27,251 17,703
-------- ------- -------- -------
Total liabilites and stockholders' equity
(defict)................................ $ 16,839 $11,521 $ 3,728 $32,088
======== ======= ======== =======
</TABLE>
See accompanying notes.
52
<PAGE>
SYNC RESEARCH, INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
Sync and Osicom Technologies, Inc., a New Jersey corporation ("Parent"),
have entered into an Agreement and Plan of Merger (the "Agreement"). The merger
is expected to be accounted for as an acquisition of Sync by Entrada using the
purchase method of accounting.
A. ACCOUNTING PERIODS
The unaudited pro forma condensed consolidated financial statements include
the results of operations and financial position of Entrada and Sync for the
three months ended April 30, 2000 and 1999, as of April 30, 2000 and for years
ended and as of January 31, 2000 and December 31, 1999, respectively and were
derived from unaudited financial statements for the three months ended
April 30, 2000 and 1999 and as of April 30, 1999 and audited financial
statements as of and for the fiscal year ended January 31, 2000 and
December 31, 1999, respectively.
B. PRO FORMA ADJUSTMENTS
The following table reflects a detailed breakdown of the pro forma
adjustments in the Unaudited Pro Forma Condensed Consolidated Balance Sheet:
UNAUDITED PRO FORMA ADJUSTMENTS (IN THOUSANDS)
<TABLE>
<CAPTION>
PRIVATE TRANSACTION
PLACEMENT(A) MERGER(B) COSTS(C) TOTAL
------------ --------- ----------- --------
<S> <C> <C> <C> <C>
Current Assets
Cash and cash equivalents.............................. $2,061 $ 3,300 $ -- $ 5,361
Accounts receivable, net............................... -- -- -- --
Due from affiliate..................................... -- -- -- --
Inventories, net....................................... -- -- -- --
Prepaid expenses and other current assets.............. -- -- -- --
------ -------- ------ --------
2,061 3,300 -- 5,361
Furniture, fixtures and equipment, net................... -- (2,633) 1,000 (1,633)
Other assets............................................. -- -- -- --
------ -------- ------ --------
Total assets............................................. $2,061 $ 667 $1,000 $ 3,728
====== ======== ====== ========
Current Liabilities
Accounts payable....................................... $ -- $ -- $1,000 1,000
Accrued compensation and benefits...................... -- -- -- --
Deferred revenue and customer deposits................. -- -- -- --
Other accrued liabilities.............................. -- -- -- --
Short-term debt........................................ -- -- -- --
Facility consolidation and severance................... -- -- -- --
Current portion of capitalized lease obligations....... -- -- -- --
------ -------- ------ --------
-- -- 1,000 1,000
Capitalized lease obligations and long-term debt......... -- -- -- --
Amount due to Parent..................................... -- (24,523) -- (24,523)
Stockholders' Equity
Common stock........................................... 2 2 -- 4
Additional paid-in capital............................. 2,059 (34,608) -- (32,549)
Accumulated deficit.................................... -- 59,796 -- 59,796
------ -------- ------ --------
Total stockholders' equity (deficit)................. 2,061 25,190 -- 27,251
------ -------- ------ --------
Total liabilities and stockholders' equity (deficit)..... $2,061 $ 667 $1,000 $ 3,728
====== ======== ====== ========
</TABLE>
--------------------------
(a) On May 12, 2000, Sync completed a private placement of newly issued
Series A Preferred Stock for an aggregate price of $2,235,625. All such
shares will be automatically converted into Sync common stock upon
53
<PAGE>
SYNC RESEARCH, INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET (CONTINUED)
B. PRO FORMA ADJUSTMENTS (CONTINUED)
the completion of the merger. Accordingly, the private placement, net of
offering costs estimated to be approximately $175,000, has been reflected in
the accompanying pro forma condensed consolidated balance sheet as if the
transaction occurred on such date.
(b) The Agreement specifies that all of Entrada's outstanding common stock will
be cancelled in exchange for shares of Sync common stock. The number of
shares of Sync common stock to be issued in exchange for Entrada's
outstanding common stock will equal the amount of shares of Sync common
stock outstanding at closing. Based upon the number of shares outstanding on
July 31, 2000, the number of shares to be issued in connection with the
merger would have been 4,237,401. The pro forma condensed consolidated
balance sheet reflects the allocation of approximately $11.7 million to
Sync's assets and liabilities based upon a value of $2.75 per share, the
closing price of Sync's common stock on the Nasdaq National Market on
July 31, 2000. The excess of the net book value of Sync's net assets over
the purchase price as of the pro forma balance sheet date, approximately
$1.6 million, has been reported as a reduction to the carrying value of
furniture, fixtures and equipment.
The Agreement also provides that Parent shall contribute additional cash to
Entrada prior to the merger for which Osicom will be issued 1 million shares
of Sync's common stock at a price per share equal to the average closing
price per share of Sync's common stock for the thirty (30) trading days
immediately preceeding the merger, but not less than $3.30 nor more than
$3.811 (the "Share Price"). The issuance of these shares has been reflected
in the accompanying pro forma condensed consolidated balance sheet as if the
transaction occurred on such date and assuming a $3.30 per share purchase
price. In addition, for each dollar amount equal to the Share Price
contributed by Parent to Entrada prior to closing, Sync shall issue one
additional share to Parent, up to a maximum of 2 million additional shares.
If all 2 million shares are issued, cash and stockholders equity shall be
increased by not less than $6.6 million upon the completion of the merger.
In connection with the merger, the outstanding intercompany payable from
Entrada to Parent will be contributed by Parent as an equity contribution.
This contribution has been reflected in the accompanying pro forma condensed
consolidated balance sheet.
(c) Parent expects to incur direct transaction costs of approximately $200,000
consisting primarily of legal and accounting costs. These direct costs have
been included in the estimated purchase price reflected in the pro forma
condensed consolidated balance sheet.
Sync estimates it will incur direct transaction costs of approximately
$800,000 associated with the merger, consisting primarily of fees for
investment banking, filings with regulatory agencies, legal, accounting,
financial printing and other related costs. These transaction costs will be
expensed as they are incurred by Sync and have been reflected in the pro
forma condensed consolidated balance sheet.
(d) Sync and Entrada expect to incur certain expenses in connection with the
restructuring and consolidation of the operations of the combined companies
including, but not limited to, costs related to the closure and elimination
of duplicate leased facilities and write-offs of related fixed assets,
write-off of discontinued products, and severance costs. Sync and Entrada
anticipate that the ultimate integration activities will result in increased
efficiencies and lower operating costs. These activities have not been
formalized, therefore, the amount of such expenses is not currently
estimable with a reasonable degree of accuracy. Accordingly, no liability
for these expenses has been included in the unaudited pro forma consolidated
balance sheet.
54
<PAGE>
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA
---------------------------- --------------------------
SYNC RESEARCH ENTRADA
THREE MONTHS THREE MONTHS
ENDED ENDED
MARCH 31, APRIL 30,
2000 2000 ADJUSTMENTS CONSOLIDATED
------------- ------------ ----------- ------------
<S> <C> <C> <C> <C>
Net sales................................... $ 3,150 $ 3,710 $ -- $ 6,860
Cost of sales............................... 1,916 5,398 -- 7,314
------- ------- ----- -------
Gross profit.............................. 1,234 (1,688) -- (454)
Research and development.................... 1,062 1,650 -- 2,712
Selling and marketing....................... 859 1,034 -- 1,893
General and administrative.................. 551 530 (82) 999
Non-recurring charges....................... -- 2,069 -- 2,069
------- ------- ----- -------
Total operating expenses.................. 2,472 5,283 (82) 7,673
Loss from operations........................ (1,238) (6,971) 82 (8,127)
Other income (expense)...................... 114 (96) -- 18
------- ------- ----- -------
Loss before income taxes.................. (1,124) (7,067) 82 (8,109)
------- ------- ----- -------
Provision for income taxes.................. 1 -- -- 1
------- ------- ----- -------
Net loss.................................... $(1,125) $(7,067) $ 82 $(8,110)
======= ======= ===== =======
Net loss per share, basic and diluted....... $ (0.32) $ 7,067 $ (0.86)
======= ======= =======
Shares used in computation of net loss per
share, basic and diluted.................. 3,516 1 9,453
======= ======= =======
</TABLE>
See accompanying notes.
55
<PAGE>
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA
---------------------------- --------------------------
SYNC RESEARCH ENTRADA
YEAR ENDED YEAR ENDED
DECEMBER 31, JANUARY 31,
1999 2000 ADJUSTMENTS CONSOLIDATED
------------- ------------ ----------- ------------
<S> <C> <C> <C> <C>
Net sales..................................... $18,152 $28,771 $ -- $46,923
Cost of sales................................. 9,905 17,498 -- 27,403
------- ------- ----- -------
Gross profit................................ 8,247 11,273 -- 19,520
Research and development...................... 5,503 6,223 -- 11,726
Selling and marketing......................... 5,136 5,647 -- 10,783
General and administrative.................... 2,284 2,177 (326) 4,135
------- ------- ----- -------
Total operating expenses.................... 12,923 14,047 (326) 26,644
Loss from operations.......................... (4,676) (2,774) 326 (7,124)
Other income (expense)........................ 408 (613) -- (205)
------- ------- ----- -------
Loss before income taxes.................... (4,268) (3,387) 326 (7,329)
------- ------- ----- -------
Provision for income taxes.................... 6 -- -- 6
------- ------- ----- -------
Net loss...................................... $(4,274) $(3,387) $ 326 $(7,335)
======= ======= ===== =======
Net loss per share, basic and diluted......... $ (1.22) $(3,387) $ (0.78)
======= ======= =======
Shares used in computation of net loss per
share, basic and diluted.................... 3,493 1 9,430
======= ======= =======
</TABLE>
See accompanying notes.
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SYNC RESEARCH, INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
STATEMENT OF OPERATIONS
Sync and Osicom Technologies, Inc., a New Jersey corporation ("Parent") have
entered into an Agreement and Plan of Merger (the "Agreement"). The merger is
expected to be accounted for as an acquisition of Sync by Entrada using the
purchase method of accounting.
A. ACCOUNTING PERIODS
The unaudited pro forma condensed consolidated financial statements include
the results of operations and financial position of Entrada and Sync for the
three months ended and as of April 30, 2000 and March 31, 2000 and for the years
ended and as of January 31, 2000 and December 31, 1999, respectively, and were
derived from unaudited financial statements for the three months ended and as of
April 30, 2000 and March 31, 2000 and audited financial statements as of and for
the fiscal year ended January 31, 2000 and December 31, 1999, respectively.
B. MERGER COSTS
Parent expects to incur direct transaction costs of approximately $200,000
consisting primarily of legal and accounting costs. These direct costs have been
included in the purchase price allocation.
Sync estimates it will incur direct transaction costs of approximately
$800,000 associated with the merger, consisting primarily of fees for investment
banking, filings with regulatory agencies, legal, accounting, financial printing
and other related costs. These non-recurring transaction costs will be expensed
as they are incurred by Sync and have been excluded from the pro forma condensed
consolidated statements of operations.
Sync and Entrada expect to incur in the twelve months following the closing
of the merger, certain expenses in connection with the restructuring and
consolidation of the operations of the consolidated companies including, but not
limited to, costs related to the closure and elimination of duplicate leased
facilities and write-offs of related fixed assets, write-off of discontinued
products, and severance costs. Sync and Entrada anticipate that the ultimate
integration activities will result in increased efficiencies and lower operating
costs. These activities have not been formalized, therefore, the amount of such
expenses is not currently estimable with a reasonable degree of accuracy.
Accordingly, no estimate of such expense is reflected in the unaudited pro forma
condensed consolidated statements of operations.
C. PRO FORMA ADJUSTMENTS
The pro forma adjustments reflected in the condensed consolidated statements
of operations represent the amortization of a $1,633,000 reduction in the
carrying value of furniture, fixtures and equipment utilizing a 5 year estimated
useful life, attributable to the excess of the net identifiable assets and
liabilities over the purchase price of Sync.
D. EARNINGS PER SHARE
The pro forma consolidated weighted average common share amounts reflected
in the unaudited pro forma condensed consolidated statements of operations
represent the aggregate of the historical weighted average common shares of Sync
outstanding during the three months ended March 31, 2000 and year ended
December 31, 1999 plus 5,237,401, the minimum number of shares expected to be
issued to Parent in connection with the merger, based upon the number of shares
outstanding on July 31, 2000; 700,000 shares of common stock to be issued in
connection with the conversion of Sync's outstanding Series A Preferred Stock
which Sync issued in May 2000 and the dilutive effective, if any, of common
stock equivalents outstanding as calculated in accordance with Statement of
Financial Accounting Standards No. 128, Earnings per Share.
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BUSINESS OF ENTRADA
DESCRIPTION OF BUSINESS
Entrada, based in Annapolis Junction, Maryland, designs, manufactures and
markets products that provide access to and enhance the performance of data and
telecommunications networks, and is currently developing products that provide
connectivity for storage networks. Many of Entrada's products are incorporated
into the remote access and other server products of original equipment
manufacturers ("OEMs"). In addition, certain of Entrada's products are deployed
by telecommunications network operators, applications service providers,
internet service providers, and the operators of corporate local area and wide
area networks for the purpose of providing access to and transport within their
networks. Entrada was incorporated in Delaware in 1972, and it operates in one
business segment, with its primary facility in Annapolis Junction, Maryland.
ENTRADA'S STRATEGIC PLAN
- DEVELOP PRODUCTS FOR STORAGE AREA NETWORKS. One of the most rapidly
growing segments of the market for networking equipment is the market for
storage area networks. Storage area networks are used to provide data
warehousing and clustering, remote backup, disaster recovery, near online
storage and a variety of other operations on stored data that are better
performed when that data is archived in locations physically near to
users, or connected to users via optical networks. The industry standard
for transmitting data to and within storage area networks is Fibre
Channel, a protocol or format for transmitting data over copper wire or
fiber optic cable. In 1999, Entrada began developing Fibre Channel
products to address the needs of storage area networks. Entrada's first
Fibre Channel and storage networking products are expected to be available
for sale during the third quarter of calendar 2000. Entrada believes that
it will be able to leverage its experience in data networking in order to
develop and sell Fibre Channel products to the storage area networking
market.
- FOCUS ON LAN CONNECTIVITY PRODUCTS. Entrada's current products include
network interface (or "adapter") cards which allow computers, servers,
load balancers and other devices to connect to a local area network
("LAN"). These network interface cards generally support the widely-
employed Fast Ethernet protocol, and have achieved acceptance among
several of the server and other OEMs to whom Entrada plans to market and
sell its Fibre Channel products. Entrada plans to focus its product
offerings on its LAN adapters while it develops new products for the
storage area networking market.
- FOCUS ON ORIGINAL EQUIPMENT MANUFACTURERS (OEMS). Entrada currently sells
its LAN products directly to OEMs, while its other networking products are
generally sold to end-users through distributors and network systems
integrators. In order to maintain the continuity of its relationships with
its OEMs while it develops its Fibre Channel products, Entrada plans to
continue to focus most of its sales and marketing efforts on the OEM
channel.
MARKETS FOR ENTRADA'S PRODUCTS
Entrada's products address the growing connectivity needs for networked,
high bandwidth data and voice communications. The networking industry has
experienced dramatic growth since the early 1990's as corporations discovered
increasing value in connecting desktop devices through local area networks. The
emergence of the Internet and the cultural movement toward wireless and home
computing in the 1990's further accelerated this trend. Entrada's products
address the demand for connectivity solutions in the traditional data networking
markets and the emerging market for storage area networking. There can be no
assurance that any of the projections cited in the following discussion
regarding the growth of traditional data networking markets or of the storage
area networking market will prove accurate,
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and Sync stockholders should not rely on such projections in evaluating the
business of Entrada or the combined companies.
STORAGE AREA NETWORKING MARKET
The technology behind storage area networks is similar to that of LANs and
WANs. Storage area networks are essentially separate local area networks that
consist of servers, storage devices (such as disc drives) and the networking
equipment used to connect and route traffic among them. These devices include
adapters, hubs, switches and routers supporting the Fibre Channel standard.
Storage area networks create a shared storage resource that is readily
available, highly scalable and designed to be easily protected and managed.
While storage area networks are not new, Entrada believes that trends
already under way will move them into the mainstream of distributed networking
and that they will become the standard way of accessing stored information. A
report by Dataquest, an Information Technology ("IT") market research and
consulting firm, projects sales of the networking equipment used to build
storage area networks to reach $1.8 billion by 2002, representing a cumulative
annual growth rate of 88%. Strategic Research, a market research firm
specializing on the storage and network storage markets, projects that storage
area networks will represent approximately 50% of all sales of non-mainframe
storage arrays (such as disc drives) in 2000. In addition, the S.G.
Cowen-Datamation 2000 Computer Systems User Survey, conducted by the securities
and investment banking firm of S.G. Cowen and EarthWeb's datamation.com, a
publication for the IT industry, reported that in 1999, 42% of all enterprises
surveyed were planning to deploy storage area networks.
IDC (International Data Corporation), a provider of analysis and market data
for the IT industry, projects that the amount of disk storage capacity being
shipped by vendors will grow by 86% per year over the next three years, from
116,000 terabytes in 1998 to 1.4 million terabytes in 2002. IDC projects storage
capacity based on the UNIX operating system to grow 76% annually to nearly
460,000 terabytes in 2002 and storage capacity based on the Windows NT operating
system to increase by 114% annually to more than 610,000 terabytes in 2002. The
Yankee Group, a research and consulting firm which focuses on e-business, the
Internet, and enterprise applications, reports that storage is now the biggest
line item in the IT budgets of corporations interviewed.
ENTRADA'S PRODUCT DEVELOPMENT APPROACH
The goal of any storage system is to allow users to retrieve information
quickly, easily and reliably. There are five major capabilities that a storage
solution must provide:
- CONNECTIVITY. Storage systems must provide access to the data and
applications that users need.
- AVAILABILITY AND FAULT TOLERANCE. Storage systems must allow continuous
access to their data, even if one or more components fail.
- PERFORMANCE. Storage systems must provide high performance and be
scalable.
- INTEGRITY. Storage systems must protect their data to ensure its accuracy
and reliability.
- MANAGEABILITY. Network operators must be able to manage their storage
systems using the traditional tools of network management (such as network
management software).
Entrada is designing its storage area networking products to be in
conformity with these requirements.
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PRODUCTS
FIBRE CHANNEL PRODUCTS
Entrada's Fibre Channel products under development leverage its skills and
know-how gained from providing LAN and WAN connectivity to traditional data
networks. These products also address the same or similar OEM customer base for
Entrada's LAN products.
Entrada is currently developing two product lines designed to meet the needs
of storage area networks, and it plans to introduce additional product lines in
the future. The first of these products are expected to be available for sale
during the third quarter of calendar 2000. Each of the two product lines under
current development supports the Fibre Channel protocol, which Entrada believes
will become the standard protocol for storage area networks.
FIBRE CHANNEL HOST BUS ADAPTERS
Entrada is currently developing a family of Fibre Channel Host Bus Adapters
("HBA's") for the storage area networks market. HBA's are installed in servers
and workstations, and provide the interface to the Fibre Channel network in much
the same way as its LAN adapters provide an interface to the Ethernet network.
Entrada expects that its HBA product line will include 1 Gigabit and 2 Gigabit
per second data transfer rate products for a variety of computer bus types.
FIBRE CHANNEL HUBS
Entrada is also developing a family of Fibre Channel hubs, which are used
for insertion and removal of devices on a Fibre Channel loop and for efficient
network management. Entrada plans to offer both entry-level and managed models
in a variety of port configuration options. Entrada expects that its hub product
line will include 1 Gigabit and 2 Gigabit per second data transfer rates
products.
LAN ADAPTERS
In the fiscal year ended January 31, 2000, 52% of Entrada's revenues were
derived from the sale of its line of high performance Local Area Network adapter
cards to OEMs. These adapter cards are used in a variety of products, including
high availability telecommunications equipment, Transmission Control
Protocol/Internet Protocol ("TCP/IP") load balancing routers, and remote access
servers. Entrada's LAN adapters are also used in a variety of industrial control
applications. Entrada's key products in this category consist of 10/100 Fast
Ethernet Adapters in both Peripheral Component Interconnect ("PCI") Bus
Specification and PCI Mezzanine Card ("PMC") form factors or sizes.
SERIES 2400 FAST ETHERNET ADPATERS
The 2404 is a high performance, quad-port 10/100 adapter that provides four
separate Fast Ethernet ports on a single PCI card, extending the local bus with
a PCI-to-PCI bridge and reducing the PCI bus load. The product is based on the
widely-used Intel media access controller ("MAC") and provides 64-bit data
transfer.
SERIES 2350 FAST ETHERNET ADAPTERS
The 2350 PMC adapter provides a single 10/100 port in the convenient PMC
form factor. The PMC form factor allows the card to be used in systems that are
based on both the VME industrial bus standard and the emerging Compact PCI bus
standard. Since drivers can easily be ported between these formats, the cards
can be used commonly by system OEMs.
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SERIES 2450 FAST ETHERNET ADAPTERS
Using the feature rich and power-efficient Intel MAC, both the single-port
2451 and dual-port 2452 adapter offer low-profile RJ-45 front panel connectors
which eliminate the need for transition cables. The 2450 series adapters fully
support IEEE 802.3u and are compatible with PCI-SIG v2.1 and PICMG v2.1.
SERIES 2200 AND 2250 FIBER DISTRIBUTED DATA INTERFACE ("FDDI") ADAPTERS
Entrada provides adapters for high-performance, high-reliability networking
using the FDDI protocol in the PCI (2200) and PMC (2250) form factors. Both
models are offered in single attach station and dual attach station versions,
and are available in a number of media and connector options. Entrada believes
that this product is in the final stages of its marketable life.
GIGABIT ETHERNET ADAPTERS
Entrada is developing a series of LAN Adapters that support the growing
market for Gigabit Ethernet connectivity. The 2500 Series Gigabit Ethernet
Adapters will provide 10/100/1000 Mbps data transmission speeds, which will
offer existing 10/100 customers a convenient migration path to Gigabit Ethernet.
Entrada plans to introduce dual port Gigabit Ethernet PCI adapters and single
port PMC adapters in both copper media (1000-TX) and multimode fiber media
(1000-SX) versions. These products are expected to be available for sale during
the third quarter of calendar 2000.
SALES AND MARKETING
Entrada's sales organization at January 31, 2000 consisted of approximately
28 individuals, including managers, sales representatives, and support
personnel. Entrada's sales organization addresses the needs of customers by
focusing on major accounts and indirect channels. Major accounts includes
telecommunications service providers, internet service providers, government
customers and original equipment manufacturers. Entrada's indirect channels are
comprised of system integrators, distributors, resellers and value added
resellers. Entrada supports its customers by providing product training, regular
mailing of promotional and technical material, telephone and other technical
support.
The goal of Entrada's marketing effort is to identify market dynamics and
translate these dynamics into strategic product development plans. Entrada's
marketing staff identifies product and vertical market segment opportunities and
provides to its sales force the tools, training, and pre-sales support it
requires to exploit the identified opportunities. Entrada's marketing staff also
engages in a number of marketing communication activities, and it participates
in cooperative marketing programs, including advertising, trade shows and
seminars.
CUSTOMERS AND MARKETS
Entrada's customer base is concentrated in the telecommunications and
networking equipment industries. For the quarter ended April 30, 2000, only two
customers had sales equal to or greater than 10% of Entrada's net sales. Sales
for these two customers accounted for 21.2% and 19.9% of Entrada's total net
sales. As of April 30, 2000 only three customers had net receivables equal to or
greater than 10% of total net receivables. These three customers has net
receivables that approximated 19.7%, 15.2% and 10.9% of Entrada's total net
receivables. During the quarter ended April 30, 1999, only two customers had
sales equal to or greater than 10% of Entrada's net sales. These two customers
had sales that approximated 27.5% and 10% respectively. As of April 30, 1999 one
customer accounted for 37.7% of Entrada's total net receivables and was the only
customer who had net receivables that were more than 10% of Entrada's net
receivables. Three customers each accounted for 19.4%, 18.7%, and 13.7% of
fiscal 2000 net sales. One customer accounted for 16.3% of fiscal 1999 net
sales. One
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customer accounted for 16.1% of fiscal 1998 net sales. At January 31, 2000 one
customer accounted for 31.9% of net receivables. At January 31, 1999 one
customer accounted for 29.7% of net receivables.
Entrada's strategy addresses the following three customer profiles:
- ORIGINAL EQUIPMENT MANUFACTURERS. Original Equipment Manufacturers
("OEMs") develop and sell solutions that incorporate Entrada LAN and WAN
products to provide connectivity to networks, including storage area
networks, local area networks and wide area networks. In addition to the
revenues Entrada may achieve directly by having its connectivity solutions
incorporated into the products of major networking OEMs, Entrada believes
that the incorporation of its technology into the products of major
networking OEMs can have an indirect positive impact on the adoption of
Entrada's technology, and therefore the sales of its stand-alone (non-OEM)
products.
- SERVICE PROVIDERS. These customers provide communication services and
primarily include telecommunication carriers, applications service
providers and internet service providers. Entrada believes that in the
future, these service providers will add data storage to the
telecommunications services they currently offer to their subscribers.
- SYSTEM INTEGRATORS. Networks are frequently provided to enterprises by
system integrators who bring together all of the technology pieces
required to build a network, and who organize those pieces into a logical
architecture. In the frequent instance that the selection of specific
equipment types is made by the system integrator, the system integrator
(and not the enterprise for which the network is being constructed) is the
customer to vendors of network equipment.
CUSTOMER SERVICE AND SUPPORT
Entrada's customer service organization is structured to assist both systems
integrators and its major OEM accounts. In addition to the product design,
integration and troubleshooting support Entrada supplies to its OEM customers,
it generally provides training and sales support to its system integrator
customers.
Post-sales support for all of Entrada's customers includes its product
warranty against defects in material and workmanship. The length of product
warranties varies by product, from 12 months in some instances, to 60 months for
a broad range of products, and previously, lifetime warranties for certain
legacy products. Telephone technical support programs for hardware and software
generally cover the first 12 months from purchase. On-site support and shared
support agreements are designed to provide a high level of service to fulfill a
broad spectrum of customer needs.
RESEARCH AND DEVELOPMENT
The goal of Entrada's research and development efforts is to achieve
technological advances which will allow it to introduce innovative products to
market. Product introduction is driven by a combination of rapidly evolving
technology and standards, as well as changing customer requirements. Entrada's
marketing staff works closely with its engineering staff, performing continuous
evaluations of customer needs, emerging trends and technical challenges in order
to identify new market opportunities. Entrada's research and development program
focuses on the combining of various proprietary technologies into a single,
common, standards-based platform. Entrada believes that its ability to introduce
new products on a timely basis depends upon its ability to maintain
sophisticated technology research programs while simultaneously focusing on
their practical application to its customers' strategic requirements.
As of January 31, 2000, there were 21 employees and 12 independent
contractors working in Entrada's research and development area. Entrada's
research and development expenditures were
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$6.2 million and $5.5 million for the fiscal years ended January 31, 2000 and
January 31, 1999, respectively.
MANUFACTURING AND QUALITY
Entrada's products are manufactured on an outsourced basis by various
turn-key vendors. Final assembly, test and quality assurance are performed by
Entrada at its Annapolis Junction, Maryland facility.
Entrada believes that its strategy of outsourcing the majority of its
manufacturing activities to third party contract manufacturers enables it to
react quickly to market demand and avoid the significant capital investment that
would be required to establish and maintain full manufacturing facilities.
Entrada is thus able to focus its manufacturing resources on final assembly,
burn-in and final testing to ensure reliability and quality assurance for its
products. Entrada has a quality assurance program in place and continually
evaluates its process to ensure quality practices throughout its organization
and to monitor the performance of its third party vendors.
AVAILABILITY OF RAW MATERIALS
Many of Entrada's products require components which may not be readily
available. These include microprocessors, custom integrated circuits and other
electronic components. To minimize the risks of component or product shortages,
Entrada attempts to maintain multiple supply sources. However, there can be no
assurance that such sources will be adequate to meet Entrada's needs.
PATENTS, TRADEMARKS AND LICENSES
Entrada currently hold nine patents. Although Entrada attempts to protect
its intellectual property rights through patents, trademarks, and copyrights, by
maintaining certain technology as trade secrets and by other measures, Entrada
cannot assure you that any patent, trademark, copyright or other intellectual
property rights owned by Entrada will not be invalidated, circumvented or
challenged; that such intellectual property rights will provide competitive
advantages to Entrada; or that any of Entrada's future patent applications, if
any, will be issued with the scope of the claims sought by Entrada, if at all.
Entrada cannot assure you that others will not develop technologies that are
similar or superior to its technology, or that its competitors will not
duplicate its technology or "design around" the patents that it owns. In
addition, effective patent, copyright and trade secret protection may be
unavailable or limited in certain foreign countries in which Entrada does
business or intends to do business in the future.
Entrada believes that the future success of its business will depend on its
ability to translate the technological expertise and innovation of its personnel
into new and enhanced products. Entrada cannot assure you that the steps taken
by it will prevent misappropriation of its technology. In the future, Entrada
may take legal action to enforce its patents and other intellectual property
rights, to protect its trade secrets, to determine the validity and scope of the
proprietary rights of others, or to defend against claims of infringement or
invalidity. Such litigation could result in substantial costs and diversion of
resources and could harm its business and operating results.
As is common in Entrada's industry, Entrada has from time to time received
notification from other companies claiming that certain Entrada products may
infringe intellectual property rights held by such companies. Any claim or
litigation, with or without merit, could be costly, time consuming and could
result in a diversion of management's attention, which could harm Entrada's
business. If Entrada were found to be infringing the intellectual property
rights of any third party, it could be subject to liabilities for such
infringement, which could be material, and could be required to seek licenses
from other companies or to refrain from using, manufacturing or selling certain
products or using certain processes. Although holders of patents and other
intellectual property rights often offer licenses to
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their patent or other intellectual property rights, no assurance can be given
that licenses would be offered, that the terms of any offered license would be
acceptable to Entrada or that failure to obtain a license would not cause its
operating results to suffer.
SEASONALITY
Entrada's sales are impacted by the buying patterns of its customers,
including but not limited to cultural and religious holidays in Asia, Europe and
the United States, and other factors.
WORKING CAPITAL PRACTICES
Entrada has historically maintained high levels of inventories to meet the
output requirements of its customers and to ensure an uninterrupted flow of
inputs from its suppliers.
Entrada performs ongoing credit evaluations of each of its customers'
financial condition and it extends unsecured credit related to the sales of
various products. As of April 30, 2000, three customers accounted for 19.7%,
15.2% and 10.9% of consolidated net receivables. Two customers accounted for
31.9% and 9.6% of net receivables at January 31, 2000. These two customers
accounted for 29.7% and 10.0% of net receivables at January 31, 1999. Five
customers represented 68% and 60% of accounts receivable at January 31, 2000 and
1999, respectfully.
BACKLOG
As of the quarter ended April 30, 2000, backlog was approximately
$8.8 million. Entrada's backlog on January 31, 2000 was approximately
$3.1 million compared with an approximate backlog of $4.8 million at
January 31, 1999. Entrada includes in its backlog only orders confirmed with a
purchase order for products to be shipped within twelve months to customers with
approved credit status. Because of what has historically been a short time
period between its customers' orders and its shipments of products, and because
its customers may notify it of desired changes in delivery schedules or
cancellations of orders (which are made without significant penalty), Entrada
does not believe that its backlog, as of any particular date, is necessarily an
indication of actual net sales for any future period.
COMPETITION
The markets for Entrada's current and planned products are intensively
competitive, highly fragmented and characterized by rapidly changing technology,
evolving industry standards, price competition and frequent new product
introductions. A number of companies offer products that compete with one or
more of its current or planned products. Entrada's current and prospective
competitors include OEMs, product manufacturers of internet access equipment,
remote access equipment, and LAN, WAN and storage area networking equipment.
Regarding the market for storage area networking products, Entrada expects that
its competitors will include JNI Corporation, Emulex Corporation, Brocade
Communications Systems, Inc., Interphase Corporation, Gadzoox Networks, Inc.,
and others. In the LAN adapter area, Entrada competes with 3Com Corporation,
Adaptec, Inc., Alteon Websystems, Inc., Intel Corporation, Interphase
Corporation, Sun Microsystems, Inc., RAMiX Inc., SBS Technologies, Inc., VMIC,
ZYNX Corporation and others. In the WAN adapter area Entrada competes with Ariel
Corporation, Digi International, Inc., Eicon Technology, Interphase Corporation,
Netaccess/ Brooktrout, Patriot Scientific Corporation, Performance Technologies,
Inc., Pika Technologies, Inc., SDL Communications, Inc. and others. In the
remote access area, Entrada competes with Lucent Technologies, Inc., Cisco
Systems, Inc., 3Com Corporation, Ericsson, Intel Corporation, Nbase-Xyplex,
Nortel Networks Corp. Hlgd., Perle Systems Limited, General DataComm
Inds., Inc., Cabletron Systems, Inc., Assured Access Technologies, Inc. and
others. In the market for routers, Entrada competes with Cisco Systems, Inc.,
3Com Corporation, Lucent Technologies Inc., Netopia, Inc., Intel
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Corporation and others. In the market for CSU/DSU's, Entrada competes with ADC
Telecommunications, Inc., Adtran, Inc., Verilink Corporation, Quick Eagle
Networks and others.
Entrada has experienced, and expects to continue to experience increased
competition from current and potential competitors, many of whom have
substantially greater financial, technical, sales, marketing and other
resources, as well as greater name recognition and larger customer based than
Entrada does. In particular, established companies in the telecommunications
equipment or computing industries may seek to expand their product offerings by
designing and selling products using competitive technology that could render
Entrada's products obsolete or have a material adverse effect on its sales. The
markets in which Entrada competes currently are subject to intense competition
and Entrada expects additional price and product competition as other
established and emerging companies enter the markets in which it is competing
and new products and technologies are introduced. Increased competition may
result in further price reductions, reduced gross margins and loss of market
share, any of which could materially and adversely affect its business,
operating results and financial condition. There can be no assurance that
Entrada will be able to compete successfully against current and future
competitors, or that the competitive factors it will face will not have a
material adverse effect on its business, operating results and financial
condition.
ENVIRONMENTAL COMPLIANCE
Entrada's operations are subject to various federal, state and local laws
and regulations with respect to environmental matters. Entrada believes that it
is in material compliance with all such federal, state and local laws and
regulations.
EMPLOYEES
As of April 30, 2000, Entrada employed 114 full-time employees and
independent contractors, including 21 in engineering, 34 in manufacturing and
quality assurance, 43 in sales, customer support and marketing, 15 in
administration, and 1 executive. None of Entrada's employees are represented by
a collective bargaining agreement, and it believes that relations with its
employees are good.
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ENTRADA MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS: COMPARISON OF THE THREE MONTHS ENDED APRIL 30, 2000 AND
APRIL 30, 1999
NET SALES. Net sales decreased to $3.7 million for the quarter ended April
30, 2000 from $6.4 million for the quarter ended April 30, 1999. Sales to OEM's
of network adapter products increased, however this increase was more than
offset by the decrease in sales to distributors of remote access and print
server products, reflecting Entrada's focus on sales to OEM's and its roll-out
of its new generation of products.
GROSS PROFIT. Gross profit decreased to a negative $1.7 million for the
quarter ended April 30, 2000 from a positive $2.5 million for the comparable
quarter last year as a result of a $2.7 million inventory valuation allowance
recorded in connection with certain product transitions related to the Company's
shift in business focus to OEM sales and network adaptor products . Exclusive of
this charge, Entrada's gross margin was 26.9 percent for the quarter ended April
30, 2000, as compared to 39.4 percent for the comparable period last year. The
decline in gross margins resulted from increased sales to OEM customers which
have lower margins than sales to distributors as well as product transitions in
anticipation of its merger with Sync.
SELLING AND MARKETING. Sales and marketing expenses decreased slightly to
$1.0 million, or 27.9% of net sales, for the quarter ended April 30, 2000 from
$1.1 million, or 17.7% of net sales for the comparable quarter last year. In
April 2000 Entrada implemented a plan to reduce its legacy sales and marketing
personnel headcount by 12 employees and close its Massachusetts facility.
ENGINEERING, RESEARCH AND DEVELOPMENT. Engineering, research and
development expenses increased to $1.7 million, or 44.5% of net sales, for the
quarter ended April 30, 2000 from $1.3 million, or 19.5% of net sales, for the
comparable quarter last year. The increase was primarily as a result of a
$435,000 write-down of capitalized software development costs resulting from
changing market conditions.
GENERAL AND ADMINISTRATIVE. General and administrative expenses decreased
to $530,000, or 14.3% of net sales, for the quarter ended April 30, 2000 from
$696,000, or 10.8% of net sales, for comparable period last year. This decrease
is the result of cost savings achieved through the consolidation of various
facilities.
OTHER OPERATING EXPENSES. In April 2000, Entrada implemented certain
programs to better align its operations with its continued shift in business
focus to OEM sales as well as the anticipation of the merger and, as a result,
recognized a $2.1 million charge consisting of severance and related headcount
reduction costs, costs associated with the closure of its Massachussetts
facility and a $1.4 million valuation reserve recorded against distributor
receivables. Entrada expects that these activities will be substantially
completed during fiscal 2001. Entrada will continue to evaluate its organization
and cost structure in connection with the refinement of its business strategy
and the merger.
INCOME TAXES. There was no provision for income taxes for quarters ended
April 30, 2000 and 1999. Entrada has carry forwards of domestic federal net
operating losses, which may be available, in part, to reduce future taxable
income in the United States. However, due to potential adjustments to the net
operating loss carry forwards as provided by the Internal Revenue Code with
respect to future ownership changes, future availability of the tax benefits is
not assured. In addition, Entrada has recorded a valuation allowance in full for
its deferred tax assets as it is Entrada's opinion that it is more likely than
not that some portion or all of the assets will not be realized.
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RESULTS OF OPERATIONS: COMPARISON OF THE YEARS ENDED JANUARY 31, 2000 AND
JANUARY 31, 1999
NET SALES. Net sales decreased to $28.8 million, or by less than 1%, for
fiscal 2000 from $29.0 million for fiscal 1999. While the sales to OEM's of
Entrada's LAN-adapter product lines increased, this increase was offset by the
decrease in the Remote Access and Print Server product lines during fiscal 2000
reflecting Entrada's shift towards its new generation of products and the
planned phase out of its legacy products.
GROSS PROFIT. Cost of sales consists principally of the costs of
components, subcontract assembly from outside manufacturers, and in-house system
integration, quality control, final testing and configuration costs. Gross
profit decreased to $11.3 million, or 13.0%, for fiscal 2000 from $13.0 million
for fiscal 1999. Gross margin decreased to 39.2% for fiscal 2000 from 44.7% for
fiscal 1999. The gross margin percentage decrease was the result of higher raw
material costs associated with shipments of Entrada's LAN-adapter products and
lower margins on legacy products.
SELLING AND MARKETING. Selling and marketing expenses consist primarily of
employee compensation and related costs, commissions to sales representatives,
tradeshow expenses and travel expenses. Sales and marketing expenses decreased
to $5.6 million, or 19.6% of net sales, for fiscal 2000 from $8.3 million, or
28.7% of net sales for fiscal 1999. During the past fiscal year Entrada
completed a realignment of its sales organization, which resulted in a reduction
in these expenses as well as reduced advertising and promotional expenses for
legacy products.
ENGINEERING, RESEARCH AND DEVELOPMENT. Engineering, research and
development expenses consist primarily of compensation related costs for
engineering personnel, facilities costs, and materials used in the design,
development and support of Entrada's technologies as well as amortization of
capitalized software development costs. Engineering, research and development
expenses increased to $6.2 million, or 21.6% of net sales, for fiscal 2000 from
$5.5 million, or 19.0% of net sales, for fiscal 1999. The increase in
engineering, research and development expenses was the result of a $1.8 million
reduction to the net book value of capitalized software development costs caused
by changing market conditions partially offset by cost savings achieved through
the consolidation of Entrada's facilities. Exclusive of the valuation allowance,
engineering research and development expenses for fiscal 2000 were 15.4% of net
sales.
GENERAL AND ADMINISTRATIVE. General and administrative expenses consist
primarily of employee compensation and related costs, legal and accounting fees,
and allocable occupancy costs. General and administrative expenses decreased to
$2.2 million, or 7.6% of net sales, for fiscal 2000 from $2.3 million, or 7.8%
of net sales, for fiscal 1999. This decrease is the result of cost savings
achieved through the consolidation of Entrada's various facilities as well as
eliminating the 35,000 square feet of unused space leased at our Annapolis
Junction, Maryland facility.
INCOME TAXES. There was no provision for income taxes for fiscal years 2000
and 1999. Entrada has carry forwards of domestic federal net operating losses,
which may be available, in part, to reduce future taxable income in the United
States. However, due to potential adjustments to the net operating loss carry
forwards as provided by the Internal Revenue Code with respect to future
ownership changes, future availability of the tax benefits is not assured. In
addition, Entrada has recorded a valuation allowance in full for its deferred
tax assets as it is Entrada's opinion that it is more likely than not that some
portion or all of the assets will not be realized.
RESULTS OF OPERATIONS: COMPARISON OF THE YEARS ENDED JANUARY 31, 1999 AND
JANUARY 31 1998
NET SALES. Net sales decreased to $29.0 million, or 5.3%, for fiscal 1999
from $30.6 million for fiscal 1998. This decrease was primarily the result of a
decline in the sales of Entrada's legacy products which was not fully offset by
introductions of Entrada's new generation of products.
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GROSS PROFIT. Gross profit decreased to $13.0 million, or 4.4%, for fiscal
1999 from $13.6 million for fiscal 1998. Gross margin remained relatively
unchanged at 44.7% for fiscal 1999 and 44.3% for fiscal 1998. This decline in
gross profit is comparable to the decline in net sales.
SELLING AND MARKETING. Sales and marketing expenses decreased to
$8.3 million, or 28.7% of net sales, for fiscal 1999 from $9.0 million, or 29.3%
of net sales for fiscal 1998. This decrease was primarily the result of the
mid-fiscal year 1998 closure of the Santa Barbara, California facility.
ENGINEERING, RESEARCH AND DEVELOPMENT. Engineering, research and
development expenses increased to $5.5 million, or 19.0% of net sales, for
fiscal 1999 from $3.5 million, or 11.6% of net sales, for fiscal 1998. The
increase in engineering, research and development expenses was the result of
increased expenditures associated with continuing development of Entrada's
existing products and future technologies.
GENERAL AND ADMINISTRATIVE. General and administrative expenses decreased
to $2.3 million, or 7.8% of net sales, for fiscal 1999 from $3.6 million, or
11.8% of net sales, for fiscal 1998. This decrease is the result of cost savings
achieved through the consolidation of Entrada's various facilities as well as
other cost reduction programs implemented mid-fiscal year 1998.
OTHER OPERATING EXPENSES. Other operating expenses consist of
acquisition-related charges including amortization of purchased technology and
valuation allowances recorded against purchased technology. During fiscal 1998
other operating expenses including amortization of $123,000 and a valuation
allowance of $3.9 million. Certain of Entrada's products, primarily LAN related
items, were not competitive in the market for such products as the technology
desired by customers could not be cost-effectively added to such products.
Entrada re-aligned its resources to focus on providing integrated networking and
bandwidth aggregation products desired by customers. Accordingly, Entrada
recorded a valuation allowance against purchased technology that had no future
alternative use.
INCOME TAXES. There was no provision for income taxes for fiscal years 1999
and 1998. Entrada has carry forwards of domestic federal net operating losses,
which may be available, in part, to reduce future taxable income in the United
States. However, due to potential adjustments to the net operating loss carry
forwards as provided by the Internal Revenue Code with respect to future
ownership changes, future availability of the tax benefits is not assured. In
addition, Entrada has recorded a valuation allowance in full for its deferred
tax assets as it is Entrada's opinion that it is more likely than not that some
portion or all of the assets will not be realized.
LIQUIDITY AND CAPITAL RESOURCES FOR THE QUARTERS ENDED APRIL 30, 2000 AND
APRIL 30, 1999
Entrada finances its operations through a combination of debt and
non-interest bearing advances from its parent. At April 30, 2000, Entrada's
working capital was $373,000.
Operating activities used cash flows of $2.5 million during quarter ended
April 30, 2000 as compared to a cash flow deficit of $1.5 million for the same
comparable period last year. The increase in cash flows used in operations
reflects an increase in our net loss. Additionally, an adjustment for non-cash
expenses including a $2.1 million non-recurring charge consisting of severance
and related headcount reduction costs, costs associated with the closure of its
Massachussetts facility and a $1.4 million valuation reserve recorded against
distributor receivables was recorded.
During the quarter ended April 30, 1999 the operating cash flow deficit
reflected an increase in inventories and amounts due from affiliates, a decline
in accounts payable and a decline in accrued expenses.
Entrada's standard payment terms are net 30 days. Receivables from
distribution customers have frequently taken longer to collect.
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Entrada's investing activities consist of purchases of property and
equipment and software development costs. During the quarter ended April 30,
2000 Entrada's equipment purchases approximated $51,000. During the quarter
ended April 30, 1999, its investing activities used cash flows of $270,000 which
included approximately $120,000 for the purchased of equipment and $150,000 for
software development cost.
Entrada's financing activities during the quarter ended April 30, 2000
provided cash flows of $2.5 million which consisted of $2.4 million of
non-interest bearing advances from Parent partially offset by net repayments of
short and long term debt of $126,000. During the quarter ended April 30, 1999
financing activities provided cash flows of $2.3 million which consisted
primarily of non-interest bearing advances from Parent, increase in financing of
capital leases offset partially by repayments in short term borrowings.
At April 30, 2000 the balance due Parent was $24.5 million. The merger
agreement entered into by Parent provides that amounts owed by Entrada to Parent
at closing will be contributed to the capital of Entrada and no remaining debt
will be outstanding to Parent after the merger.
Entrada has a $7.0 million line of credit provided by Coast Business Credit,
a division of Southern Pacific Bank, an asset-based lender. Outstanding
short-term borrowings against this line of credit were $2.2 million at
April 30, 2000. This credit line is collateralized by accounts receivable,
inventory and equipment.
LIQUIDITY AND CAPITAL RESOURCES FOR THE YEARS ENDED JANUARY 31, 2000 AND
JANUARY 31, 1999
Entrada finances its operations through a combination of debt and
non-interest bearing advances from Parent. At January 31, 2000, Entrada's
working capital was $4.2 million including $112,000 in cash.
Operating activities provided cash flows of $134,000 during fiscal 2000 as
compared to a cash flow deficit of $2.8 million during fiscal 1999. The decrease
in cash flows used in operations reflects a decline in Entrada's net loss, after
adjustment for non-cash expenses including depreciation, amortization, reserves
and valuation allowances, partially offset by fiscal 2000 investments in
inventory. During fiscal 1999 the operating cash flow deficit reflected an
increase in accounts receivable including amounts due from affiliates, a decline
in accounts payable and a decline in accrued expenses. Entrada's operating cash
flow deficit for fiscal 1998 of $3.7 million reflects a greater net loss, after
adjustment for non-cash operating expenses, as well as substantial increases in
accounts receivable and inventories offset, in part, by increases in current
liabilities.
Entrada's investing activities consist of purchases of property and
equipment and software development costs. During fiscal 2000 Entrada purchased
equipment of $239,000 and invested $318,000 in software development as compared
with fiscal 1999 equipment purchases of $567,000 and software development of
$1.3 million. Investing activities during fiscal 1998 were comparable to those
of fiscal 1999.
Entrada's financing activities during fiscal 2000 provided cash flows of
$337,000 which consisted of $2.3 million of non-interest bearing advances from
Parent partially offset by net repayments of short and long term debt of
$1.9 million. During fiscal 1999 financing activities provided cash flows of
$4.6 million which consisted primarily of non-interest bearing advances from
Parent. During fiscal 1998 financing activities provided cash flows of
$5.9 million which consisted of $3.2 million in advances from Parent with the
remaining amounts received from short and long term financing.
At January 31, 2000 the balance due Parent was $21.8 million. The merger
agreement entered into by Parent provides that amounts owed by Entrada to Parent
at closing will be contributed to the capital of Entrada and no remaining debt
will be outstanding to Parent after the merger.
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Entrada has a $7.0 million line of credit provided by Coast Business Credit,
a division of Southern Pacific Bank, an asset-based lender. Outstanding
short-term borrowings against this line of credit were $2.3 million at
January 31, 2000. This credit line is collateralized by accounts receivable,
inventory and equipment.
YEAR 2000 COMPLIANCE
Entrada has not experienced any year 2000 compliance problems to date and it
believes that its products are year 2000 compliant. Entrada is not aware that
any of its customers, vendors or contract manufacturers that have experienced
any such problems to date. It is possible that yet undiscovered problems could
severely disrupt Entrada's operations and would adversely affect its business if
not properly addressed.
EFFECTS OF INFLATION AND CURRENCY EXCHANGE RATES
Entrada is exposed to financial market risks, including changes in interest
rates and foreign currency rates. Its exposure to interest rate risk is the
result of its need for periodic additional financing for our large operating
losses and capital expenditures associated with establishing and expanding its
operations. The interest rate that Entrada will be able to obtain on debt
financing will depend on market conditions at that time, and may differ from the
rates Entrada have secured on its current debt. Additionally, the interest rates
charged by Entrada's present lender adjusts on the basis of the lenders' prime
rate.
Entrada believes that the relatively moderate rate of inflation in the
United States over the past few years and the relatively stable interest rates
incurred on short-term financing have not had a significant impact on its sales,
operating results or prices of raw materials. There can be no assurance,
however, that inflation or an upward trend in short-term interest rates will not
have a material adverse effect on its operating results in the future should
Entrada require debt financing in the future.
All of Entrada's sales and expenses have been denominated in U.S. dollars
and to date its business has not been significantly affected by currency
fluctuations. However, Entrada conducts business in several different countries
and thus fluctuations in currency exchange rates could cause its products to
become relatively more expensive in particular countries, leading to a reduction
in sales in that country. In addition, inflation in such countries could
increase Entrada's expenses. In the future, Entrada may engage in foreign
currency denominated sales or pay material amounts of expenses in foreign
currencies and, in such event, may experience gains and losses due to currency
fluctuations. Entrada's operating results could be adversely affected by such
fluctuations.
Entrada does not hold or issue derivatives, derivative commodity instruments
or other financial instruments for trading purposes. Investments held for other
than trading purposes do not impose a material market risk.
IMPACT OF RECENT ACCOUNTING PRONOUNCEMENTS
Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting
for Derivative Instruments and Hedging Activities," is effective for financial
statements with fiscal quarters of all fiscal years beginning after June 15,
2000. The Accounting Standards Executive Committee issued Statement of Position
("SOP") 98-1, "Accounting for the Costs of Computer Software Developed or
Obtained for Internal Use," and SOP 98-5, "Reporting on the Costs of Start-up
Activities," effective in the current or future periods. The adoption or future
adoption of these standards has had or will have no material effects, if any, on
Entrada's financial position or results of operations.
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FLUCTUATIONS IN REVENUE AND OPERATING RESULTS
The networking and bandwidth aggregation industry is subject to fluctuation.
Entrada's operating results may fluctuate as a result of a number of factors,
including the timing of orders from, and shipments to, customers; the timing of
new product introductions and the market acceptance of those products; increased
competition; changes in manufacturing costs; availability of parts; changes in
the mix of product sales; the rate of end-user adoption and carrier and private
network deployment of SAN solutions; factors associated with international
operations; and changes in world economic conditions.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Entrada is exposed to financial market risks, including changes in interest
rates and foreign currency rates. Entrada's exposure to interest rate risk is
the result of its need for periodic additional financing for its large operating
losses and capital expenditures associated with establishing and expanding its
operations.
Almost all of Entrada's sales have been denominated in U.S. dollars. A
portion of its expenses are denominated in currencies other than the U.S. dollar
and in the future a larger portion of its sales could also be denominated in
non-U.S. currencies. As a result, currency fluctuations between the U.S. dollar
and the currencies in which Entrada does business could cause foreign currency
translation gains or losses that Entrada would recognize in the period incurred.
Entrada cannot predict the effect of exchange rate fluctuations on its future
operating results because of the number of currencies involved, the variability
of currency exposure and the potential volatility of currency exchange rates.
Entrada attempts to minimize its currency exposure risk through working capital
management and does not hedge its exposure to translation gains and losses
related to foreign currency net asset exposures.
Entrada does not hold or issue derivative, derivative commodity instruments
or other financial instruments for trading purposes. Investments held for other
than trading purposes do not impose a material market risk.
Entrada believes that the relatively moderate rate of inflation in the
United States over the past few years and the relatively stable interest rates
incurred on short-term financing have not had a significant impact on its sales,
operating results or prices of raw materials. There can be no assurance,
however, that inflation or an upward trend in short-term interest rates will not
have a material adverse effect on its operating results in the future should
Entrada require debt financing in the future.
FORWARD-LOOKING STATEMENTS--CAUTIONARY STATEMENT
All statements other than statements of historical fact contained in this
discussion and analysis are forward-looking statements. Words such as "propose,"
"anticipate," "believe," "estimate," "expect," "intend," "may," "should",
"could," "will" and similar expressions are intended to identify such
forward-looking statements. These forward-looking statements are made pursuant
to the safe harbor provisions of the Private Securities Litigation Reform Act of
1995. Although Entrada believes that its expectations reflected in these
forward-looking statements are based on reasonable assumptions, such statements
involve risk and uncertainties and no assurance can be given that actual results
will be consistent with these forward-looking statements. Important factors that
could cause actual results to differ materially from those forward-looking
statements include without limitation: unanticipated technical problems related
to Entrada's products; Entrada's ability, or lack thereof, to make, market and
sell optical networking products, high-speed connectivity products, and products
for Storage Area Networks that meet with market approval and acceptance; the
greater financial, technical and other resources of Entrada's many, larger
competitors in the marketplace, changed market conditions, new business
opportunities or other factors that might affect Entrada's decisions as to the
best interest of its shareholders, including but not limited to Entrada's
decision to focus its sales efforts on Original Equipment Manufacturers or to
develop products for the Storage Area Networking marketplace; the
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failure of Entrada to achieve sales of its products to customers pursuant to the
strategic alliance and equipment purchase agreements entered into during
Entrada's first fiscal quarter 2000; other uncertainties relating to the
effectiveness of the consolidation activities related to the proposed merger of
Sync and Entrada; and the effect of the merger upon the customers of Sync and
Entrada and those customers' decisions to purchase products and services prior
to the merger from either company, or after the merger from Entrada.
EXPERTS
Ernst & Young LLP, independent auditors, have audited our consolidated
financial statements included in our Annual report on Form 10-K for the year
ended December 31, 1999, as set forth in their report, which is incorporated by
reference in this prospectus and elsewhere in the registration statement. Our
financial statements are incorporated by reference in reliance on Ernst & Young
LLP's report, given on their authority as experts in accounting and auditing.
The financial statements of Entrada at January 31, 2000 and 1999, and for
each of the three years in the period ended January 31, 2000, included in this
proxy statement/prospectus, have been audited by BDO Seidman, LLP, independent
auditors, as set forth in their report which is included in this proxy
statement/prospectus and have been so included in reliance upon such report
given upon the authority of such firm as experts in accounting and auditing.
LEGAL MATTERS
Orrick, Herrington & Sutcliffe LLP, Los Angeles, California, is acting as
counsel for Sync in connection with certain legal matters relating to the merger
and the transactions contemplated thereby.
Greenbaum, Rowe, Smith, Ravin, Davis & Himmel LLP, Woodbridge, New Jersey,
is acting as counsel for Entrada in connection with certain legal matters
relating to the merger and the transactions contemplated thereby.
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OTHER ANNUAL MEETING PROPOSALS
This section relates specifically to Sync's other annual meeting proposals
and related matters and not to matters relating to the proposed Sync/Entrada
merger discussed elsewhere in this proxy statement/prospectus. As of the date of
this proxy statement/prospectus, the Sync board of directors knows of no other
matters that will be presented for consideration at the annual meeting other
than as described in this proxy statement/prospectus.
PROPOSAL NO. 3: ELECTION OF DIRECTORS
NOMINEES
In October 1999, the board of directors amended Sync's bylaws to increase
the number of persons who sit on the board of directors from three to four. The
board of directors subsequently elected Mr. William K. Guerry, the President and
Chief Executive Officer of Sync, to the board to fill the newly created vacancy
and Mr. Guerry is standing for election at the annual meeting. There are
currently three other members standing for election.
Unless otherwise instructed, the proxy holders will vote the proxies
received by them for the nominees named below, regardless of whether any other
names are placed in nomination by anyone other than one of the proxy holders. In
the event that any such nominee is unable or declines to serve as a director at
the time of the annual meeting, the proxy holders will vote in their discretion
for a substitute nominee. It is not expected that any nominee will be
unavailable. The term of office of each person elected as a director will
continue until the next annual meeting or until his successor has been elected
and qualified.
The names of the nominees, their ages, and certain other information about
them are set forth below:
<TABLE>
<CAPTION>
NAME OF NOMINEE AGE PRINCIPAL OCCUPATION DIRECTOR SINCE
--------------- -------- ------------------------------------------- --------------
<S> <C> <C> <C>
Gregorio Reyes....................... 59 Chairman of the Board of Directors of Sync 1995
William K. Guerry.................... 35 President, Chief Executive Officer and 1999
Chief Financial Officer of Sync
Charles A. Haggerty.................. 58 Former Chairman of the Board, President and 1995
Chief Executive Officer of Western Digital
Corp.
William J. Schroeder................. 55 President and Chief Executive Officer of 1998
CYBERIQ Systems, Inc.
</TABLE>
Except as set forth below, each of the nominees has been engaged in his
principal occupation set forth above during the past five years.
MR. REYES has served as Chairman of Sync's board of directors since
January 1995 and from October 1997 to May 1998 in the Office of the Chief
Executive Officer of Sync. 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. GUERRY has served as Sync's President and Chief Executive Officer and as
a Director of Sync since October 1999 and as Sync'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
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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. HAGGERTY has served as a member of Sync's board of directors since
June 1995. He served as Chairman, President and Chief Executive Officer of
Western Digital Corp., a manufacturer of disk drives, from July 1992 to
January 2000 (as Chairman of the board of directors until June 2000). From
June 1992 through June 1993, Mr. Haggerty served as President and Chief
Operating Officer of Western Digital. Mr. Haggerty also serves as a director of
Pentair, Inc., 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 Sync's board of directors since
April 1998. Since February 2000, Mr. Schroeder has served as President and Chief
Executive Officer of CYBERIQ Systems, Inc., a developer of Internet traffic and
content management appliances. 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 September 1999. Mr. Schroeder was
employed by Conner Peripherals, Inc., 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 Transportation Inc. He
received his M.B.A. from Harvard University and M.S.E.E. and B.E.E. from
Marquette University.
BOARD MEETINGS AND COMMITTEES
The board of directors held a total of seven (7) meetings during the fiscal
year ended December 31, 1999. The board of directors has an Audit Committee and
a Compensation Committee. It does not have a nominating committee or a committee
performing the functions of a nominating committee.
During 1999, the Audit Committee of the board of directors consisted of
Charles A. Haggerty and William J. Schroeder, both of whom were non-employee
directors of Sync. The Audit Committee participated in several meetings during
1999, including meetings with Sync's management to review audited and interim
financial statements, independent auditor findings, accounting policies and
adequacy of internal controls.
During 1999, the Compensation Committee of the board of directors consisted
of Charles Haggerty and William J. Schroeder, both of whom were non-employee
directors. The Compensation Committee participated in several meetings during
1999. 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 Sync's stock purchase and stock option plans) and
recommends policies relating to such plans. The Compensation Committee has
exclusive authority to award grants of options or restricted stock to executive
officers of Sync, pursuant to the 1991 Stock Plan and the 1995 Employee Stock
Purchase Plan.
During 1999, no incumbent director attended fewer than 75% of the aggregate
number of meetings of the board of directors and of the committees of the board
of directors on which he serves.
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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 Sync. 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 Sync will automatically be granted options to purchase shares of
Sync common stock pursuant to the terms of the 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 Sync 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 his election to the board of
directors by the stockholders at the annual meeting, Mr. Haggerty will be
automatically granted an option to purchase 2,000 shares of common stock on the
date of the annual meeting. Subject to the authorization by the stockholders at
the annual meeting of the issuance of Sync common stock under the merger
agreement, Mr. Schroeder will not receive an option to purchase 2,000 shares of
common stock on the date of the annual meeting, as he will resign from the board
following the merger. There are no family relationships among the directors or
executive officers of Sync.
POTENTIAL NEW DIRECTORS
If the Sync stockholders authorize the issuance of Sync common stock
pursuant to the merger agreement for completion of the merger, the board of
directors of Sync following the merger intends to increase the number of
directors who sit on the board from four to five, and to appoint Dr. Kanwar J.S.
Chadha, currently the President and Chief Executive Officer of Entrada and the
intended President and Chief Executive Officer of Sync following the merger, to
fill such created vacancy. Further, it is the present intention of Sync and
Entrada to have Messrs. Guerry and Schroeder step down from the board upon
consummation of the merger, and be replaced by Leonard N. Hecht, currently a
director of Parent, and Rohit Phansalkar, currently Chairman of the Board, Chief
Executive Officer and a director of Parent. Mr. Phansalkar is a former partner
of Andersen, Weinroth & Co., L.P., affiliates of which own all of the
outstanding Series A Preferred Stock of Sync and are stockholders of Parent.
Therefore, assuming that the Sync stockholders authorize the issuance of Sync
common stock under the merger agreement for completion of the merger and elect
the slate of directors that the Sync board of directors has nominated, the board
of directors of Sync following the merger will consist of Gregorio Reyes,
currently the Chairman of Sync's board of directors, Dr. Chadha, Charles A.
Haggerty, currently a director of Sync, Mr. Hecht and Mr. Phansalkar.
DR. CHADHA has served as the President and Chief Executive Officer of
Entrada since April 2000. Dr. Chadha joined AT&T Bell Laboratories in
February 1973 as a Member of Technical Staff and served as a systems engineer &
principal software designer for the AMPS trial system. As a Supervisor at AT&T
Bell Laboratories from August 1977 to August 1980, Dr. Chadha was responsible
for the development of various software systems. As a Department Head at AT&T
Bell Laboratories from August 1980 to January 1987, Dr. Chadha managed the
development of cellular technologies, MERLIN phone system, Applications
Processor, Videotex system, and System 25 PBX. He is a
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co-founder of WaterBazaar.com e-portal, currently under development, that will
provide buyers and suppliers of water purification products worldwide an
electronic exchange through which to conduct e-commerce. Dr. Chadha is also a
founding member of ERPL, Inc., a firm that specializes in the development of
embedded software systems, enterprise and manufacturing resource planning
software systems, and that provides business-to-business e-marketplace systems
solutions & development. Dr. Chadha holds a B.E. (Hons) in Electrical
Engineering from Thapar Institute of Technology, Punjab, India, a M.A.Sc. in
Control Systems from the University of Toronto, Ontario, Canada, and a Ph.D. in
Systems Engineering from Case Western Reserve University, Cleveland, Ohio.
Mr. HECHT has served as a director of Parent since June 1996. Since 1994, he
has been President of Chrysalis Capital Group, an investment banking company
that he founded, specializing in mergers, acquisitions and financing. From 1987
to 1993, Mr. Hecht was Managing Director of the Investment Banking Group and
head of the Technology Assessment Group of Houlihan Lokey Howard & Zukin, a
financial advisory firm. From 1984 to 1987, Mr. Hecht was the Vice Chairman of
the board of directors and Chief Executive Officer of Quantech Electronics
Corp., a diversified publicly held electronics company. Prior to joining
Quantech, Mr. Hecht was a founding principal of Xerox Development Corporation, a
wholly owned subsidiary of the Xerox Corporation. Xerox Development Corporation
was active in strategic planning, mergers and acquisition, divestitures,
licensing, joint ventures and venture investing for the Xerox Corporation.
Mr. PHANSALKAR has served as a director of Parent since December 1999, and
on July 8, 2000 he also became the Chairman of the Board and the Chief Executive
Oficer of Parent. From February 1998, until July 2000, he was a partner of
Andersen, Weinroth & Co., L.P., affiliates of which own all of the outstanding
Series A Preferred Stock of Sync and are stockholders of Parent. Prior to
joining Andersen, Weinroth, Mr. Phansalkar was the co-founder, Vice Chairman and
Chief Executive Officer of Newbridge Capital, a firm dedicated to making private
equity investments in India. From 1993 to 1996 Mr. Phansalkar was a Managing
Director of Oppenheimer & Co., where he was the head of the Energy Finance
Group. From 1985 to 1993 Mr. Phansalkar was a Managing Director of Bear
Stearns & Co. Prior thereto, he was the co-head of the Energy Finance Group at
Shearson American Express. Mr. Phansalkar also serves as a director of Zip
Global Networks. Mr. Phansalkar received a B.S. in Engineering from Michigan
Technological University and an M.B.A. from Harvard University Graduate School
of Business Administration.
VOTE REQUIRED AND RECOMMENDATION OF BOARD OF DIRECTORS
The four nominees receiving the highest number of affirmative votes of
shares of Sync common stock and Series A Preferred Stock present at the annual
meeting in person or by proxy and entitled to vote shall be elected as
directors.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR THE ELECTION OF
EACH OF THE NOMINEES LISTED ABOVE TO SERVE AS DIRECTORS FOR THE ENSUING YEAR AND
UNTIL THEIR SUCCESSORS ARE ELECTED AND QUALIFIED.
PROPOSAL NO. 4: APPROVAL OF AMENDMENT TO THE 1995 EMPLOYEE STOCK PURCHASE PLAN
At the annual meeting, stockholders are being asked to approve an amendment
to the 1995 Employee Stock Purchase Plan to increase the number of shares of
common stock reserved for issuance thereunder by 100,000 shares to an aggregate
of 140,000 shares.
GENERAL
Sync's 1995 Employee Stock Purchase Plan was adopted by the board of
directors in August 1995 and was approved by Sync's stockholders in
November 1995. On May 9, 2000 the board of directors approved an amendment to
increase the number of shares reserved for issuance under the 1995
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Employee Stock Purchase Plan by 100,000 shares to a total of 140,000 shares, for
which stockholder approval is being requested.
The 1995 Employee Stock Purchase Plan, as amended, provides for the granting
to employees (including officers and employee directors) of stock purchase
rights within the meaning of Section 423 of the Internal Revenue Code of 1986,
as amended. See "Federal Income Tax Aspects of the 1995 Employee Stock Purchase
Plan" below for information concerning the tax treatment of incentive stock
purchase rights.
All available shares have been issued under the 1995 Employee Stock Purchase
Plan and no shares remain available for future purchase.
The 1995 Employee Stock Purchase Plan is not a qualified deferred
compensation plan under Section 401(a) of the Internal Revenue Code, and is not
subject to the provisions of the Employee Retirement Income Security Act of
1974, as amended.
The board of directors believes that in order to afford eligible individuals
whose present and potential contributions are important to the continued success
of Sync an opportunity to acquire a proprietary interest in Sync and to enable
Sync to continue to attract and retain the best available talent for the
successful conduct of its business in a competitive marketplace, it is necessary
to amend the 1995 Employee Stock Purchase Plan to reserve an additional 100,000
shares of common stock for issuance thereunder. The increase sought at the
annual meeting is expected to provide sufficient additional stock to continue
Sync's policy of using equity incentives to attract and retain the services of
key individuals essential to Sync's long-term success.
PURPOSE
The purpose of the 1995 Employee Stock Purchase Plan is to provide employees
of Sync the opportunity to purchase Sync common stock.
ADMINISTRATION
The board of directors, or a committee named by the board of directors,
shall supervise and administer the 1995 Employee Stock Purchase Plan and shall
have full power to adopt, amend and rescind any rules deemed desirable and
appropriate for, and not inconsistent with, the administration of the 1995
Employee Stock Purchase Plan, to construe and interpret the 1995 Employee Stock
Purchase Plan, and to make all other determinations necessary or advisable for
the administration of the 1995 Employee Stock Purchase Plan. The composition of
the committee shall be in accordance with the requirements to obtain or retain
any available exemption from the operation of Section 16(b) of the Exchange Act
pursuant to Rule 16b-3 promulgated thereunder.
ELIGIBILITY
Any person who is an employee of Sync shall be eligible to participate in
the 1995 Employee Stock Purchase Plan, subject to the limitations imposed by
Section 423(b) of the Internal Revenue Code. Any provisions of the 1995 Employee
Stock Purchase Plan to the contrary notwithstanding, no employee shall be
granted an option under the 1995 Employee Stock Purchase Plan (i) if,
immediately after the grant, such employee (or any other person whose stock
would be attributed to such employee pursuant to Section 424(d) of the Internal
Revenue Code) would own stock and/or hold outstanding options to purchase stock
possessing five percent (5%) or more of the total combined voting power or value
of all classes of stock of Sync or of any subsidiary of Sync, or (ii) if such
option would permit his or her rights to purchase stock under all employee stock
purchase plans (described in Section 423 of the Code) of Sync and its
subsidiaries to accrue at a rate which exceeds Twenty-Five Thousand Dollars
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($25,000) of fair market value of such stock (determined at the time such option
is granted) for each calendar year in which such option is outstanding at any
time.
OFFERING PERIODS; PARTICIPATION
The 1995 Employee Stock Purchase Plan shall be implemented by a series of
offering periods, with new offering periods commencing on or about February 1
and August 1 of each year (or at such other time or times as may be determined
by the board of directors). An eligible employee may become a participant in the
1995 Employee Stock Purchase Plan by completing a subscription agreement on the
form provided by Sync and filing it with the payroll office prior to the
applicable offering date of each offering period.
METHOD OF PAYMENT OF CONTRIBUTIONS
The participant shall elect to have payroll deductions made on each payday
during the offering period in an amount not less than one percent (1%) and not
more than five percent (5%) of such participant's compensation on each such
payday. All payroll deductions made by a participant shall be credited to his or
her account under the 1995 Employee Stock Purchase Plan. A participant may not
make any additional payments into such account. A participant, on one occasion
only during the offering period, may decrease the rate of his or her
contributions during the offering period by completing and filing with Sync a
new subscription agreement. Notwithstanding the foregoing, to the extent
necessary to comply with the Internal Revenue Code and the eligibility
requirements under the 1995 Employee Stock Purchase Plan, a participant's
payroll deductions may be decreased to 0% at such time during any offering
period which is scheduled to end during the current calendar year that the
aggregate of all payroll deductions accumulated with respect to such offering
period and any other offering period ending within the same calendar year equals
or exceeds $21,250.
GRANT OF OPTION
On the commencement date of each offering period, each eligible employee
participating in such offering period shall be granted an option to purchase on
the exercise date a number of shares of Sync common stock determined by dividing
such employee's contributions accumulated prior to such exercise date by the
lower of (i) eighty-five percent (85%) of the fair market value of a share of
Sync common stock on the offering date, or (ii) eighty-five percent (85%) of the
fair market value of a share of Sync common stock on the exercise date. The
maximum number of shares an employee may purchase during each offering period
shall be determined at the offering date by dividing $12,500 by the fair market
value of a share of Sync common stock on the offering date.
The fair market value of Sync common stock on a given date shall be
determined by the board of directors in its discretion based on the closing
price of Sync common stock for such date, as reported by the National
Association of Securities Dealers Automated Quotation (Nasdaq) National Market
or, if such price is not reported, the mean of the bid and asked prices per
share of Sync common stock as reported by Nasdaq.
EXERCISE OF OPTION
Unless a participant withdraws from the 1995 Employee Stock Purchase Plan,
his or her option for the purchase of shares will be exercised automatically on
the exercise date of the offering period, and the maximum number of full shares
subject to the option will be purchased at the applicable option price with the
accumulated contributions in his or her account. The shares purchased upon
exercise of an option hereunder shall be deemed to be transferred to the
participant on the exercise date. During his or her lifetime, a participant's
option to purchase shares hereunder is exercisable only by him or her.
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WITHDRAWAL; TERMINATION OF EMPLOYMENT
A participant may withdraw all but not less than all of the contributions
credited to his or her account under the 1995 Employee Stock Purchase Plan at
any time prior to the exercise date of the offering period by giving written
notice to Sync. All of the participant's contributions credited to his or her
account will be paid to him or her promptly after receipt of his or her notice
of withdrawal and his or her option for the current period will be automatically
terminated, and no further contributions for the purchase of shares will be made
during the offering period.
Upon termination of the participant as a Sync employee prior to the exercise
date of the offering period for any reason, including retirement or death, the
contributions credited to his or her account will be returned to him or her or,
in the case of his or her death, to the person or persons entitled previously
designated by the participant, and his or her option will be automatically
terminated. In the event an employee fails to remain in continuous status as an
employee of Sync for at least twenty (20) hours per week during the offering
period in which the employee is a participant, he or she will be deemed to have
elected to withdraw from the 1995 Employee Stock Purchase Plan and the
contributions credited to his or her account will be returned to him or her and
his or her option terminated.
ADJUSTMENT UPON CHANGES IN CAPITALIZATION OR CORPORATE TRANSACTIONS
CHANGES IN CAPITALIZATION. If any change is made in the shares subject to
the 1995 Employee Stock Purchase Plan or subject to any option granted under the
1995 Employee Stock Purchase Plan, through merger, consolidation,
reorganization, recapitalization, stock dividend, dividend in property other
than cash, stock split, liquidating dividend, combination of shares, exchange of
shares, change in corporate structure or otherwise, the board of directors shall
make appropriate adjustments as to the maximum number of shares subject to the
1995 Employee Stock Purchase Plan, the number of shares covered by any option
grant, the maximum number of shares issuable to employees, and the number of
shares and price per share covered by outstanding options.
CORPORATE TRANSACTIONS. In the event of the proposed dissolution or
liquidation of Sync, the offering period will terminate immediately prior to the
consummation of such proposed action, unless otherwise provided by the board. In
the event of a proposed sale of all or substantially all of the assets of Sync,
or the merger of Sync with or into another corporation, each option under the
1995 Employee Stock Purchase Plan shall be assumed or an equivalent option shall
be substituted by such successor corporation or a parent or subsidiary of such
successor corporation, unless the board determines, in the exercise of its sole
discretion and in lieu of such assumption or substitution, to shorten the
offering period then in progress by setting a new exercise date. If the board
shortens the offering period then in progress in lieu of assumption or
substitution in the event of a merger or sale of assets, the board shall notify
each participant in writing, at least ten (10) days prior to the new exercise
date, that the exercise date for his or her option has been changed to the new
exercise date and that his or her option will be exercised automatically on the
new exercise date, unless prior to such date he or she has withdrawn from the
offering.
AMENDMENT OR TERMINATION
The board of directors may at any time terminate or amend the 1995 Employee
Stock Purchase Plan. Except as otherwise provided in the plan, no such
termination may affect options previously granted, nor may an amendment make any
change in any option theretofore granted which adversely affects the rights of
any participant. In addition, to the extent necessary to comply with Rule 16b-3
under the Exchange Act, or with Section 423 of the Code, Sync shall obtain
stockholder approval in such a manner and to such a degree as so required.
Without stockholder consent and without regard to whether any participant rights
may be considered to have been adversely affected, the board (or its committee)
shall be entitled to change the offering periods, limit the frequency and/or
number of
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changes in the amount withheld during an offering period, establish the exchange
ratio applicable to amounts withheld in a currency other than U.S. dollars,
permit payroll withholding in excess of the amount designated by a participant
in order to adjust for delays or mistakes in Sync's processing of properly
completed withholding elections, establish reasonable waiting and adjustment
periods and/or accounting and crediting procedures to ensure that amounts
applied toward the purchase of Sync common stock for each participant properly
correspond with amounts withheld from the participant's compensation, and
establish such other limitations or procedures as the board (or its committee)
determines in its sole discretion advisable which are consistent with the 1995
Employee Stock Purchase Plan.
FEDERAL INCOME TAX ASPECTS OF THE 1995 EMPLOYEE STOCK PURCHASE PLAN
The following is a brief summary of the United States federal income tax
consequences of transactions under the 1995 Employee Stock Purchase Plan based
on federal income tax laws in effect as of the date of this proxy statement
(which laws could change at any time hereafter). This summary is not intended to
be exhaustive and does not discuss the tax consequences of a participant's death
or provisions of the income tax laws of any municipality, state or other country
in which an optionee may reside. This summary does not purport to be complete.
Sync advises all participants to consult their own tax advisors concerning tax
implications of option grants and exercises, and the disposition of shares
acquired upon such exercises, under the 1995 Employee Stock Purchase Plan.
The 1995 Employee Stock Purchase Plan, and the right of participants to make
purchases thereunder, is intended to qualify under the provisions of Sections
421 and 423 of the Code. Under these provisions, no income will be taxable to a
participant at the time of grant of the option or purchase of shares. Upon
disposition of the shares, the participant will generally be subject to tax, and
the amount of the tax will depend upon how long the participant has held the
shares. If the shares have been held by the participant for more than two years
after the date of option grant and one year after the date of purchase, the
participant will recognize ordinary income measured as the lesser of (a) the
excess of the fair market value of the shares at the time of such disposition
over the purchase price, or (b) an amount equal to 15% of the fair market value
of the shares as of the first day of the offering period. Any additional gain
will be treated as long-term capital gain, taxed at a maximum rate of 20% if the
shares are held for more than one year after the date of purchase. If the shares
are disposed of before the expiration of these holding periods, the excess of
the fair market value of the shares on the exercise date over the option price
will be treated as ordinary income, and any further gain or loss on such
disposition will be long-term or short-term capital gain or loss, depending on
whether or not the shares are disposed of more than one year after the date of
purchase. Sync is not entitled to a deduction for amounts taxed as ordinary
income or capital gain to a participant except to the extent of ordinary income
reported by participants upon disposition of shares prior to the expiration of
the holding periods described above.
REQUIRED VOTE
The affirmative vote of the holders of a majority of the shares of Sync
common stock and Series A Preferred Stock present at the annual meeting in
person or by proxy and entitled to vote is required to approve the amendment to
the 1995 Employee Stock Purchase Plan to reserve an additional 100,000 shares of
common stock for issuance thereunder.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR THE APPROVAL OF THE
AMENDMENT TO THE 1995 EMPLOYEE STOCK PURCHASE PLAN TO RESERVE AN ADDITIONAL
100,000 SHARES OF COMMON STOCK FOR ISSUANCE THEREUNDER.
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PROPOSAL NO. 5: APPROVAL OF INDEPENDENT AUDITORS
The board of directors has appointed the firm of Ernst & Young LLP,
independent auditors, to audit the financial statements of Sync for the fiscal
year ending December 31, 2000, and recommends that stockholders vote for
ratification of this appointment. In the event the stockholders do not ratify
such appointment, the board of directors will reconsider its selection.
Representatives of Ernst & Young LLP are expected to be present at the annual
meeting with the opportunity to make a statement if they desire to do so, and
are expected to be available to respond to appropriate questions.
VOTE REQUIRED AND RECOMMENDATION OF BOARD OF DIRECTORS
The affirmative vote of the holders of a majority of the shares of Sync
common stock and Series A Preferred Stock present at the annual meeting in
person or by proxy and entitled to vote is required for approval of the
ratification of the appointment of Ernst & Young LLP as Sync's independent
auditors.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR THE APPROVAL OF
ERNST & YOUNG LLP AS SYNC'S INDEPENDENT AUDITORS FOR THE YEAR ENDING
DECEMBER 31, 2000.
POSSIBLE STOCKHOLDER PROPOSAL
In a letter dated April 11, 2000, Sync was informed by one of its
stockholders, Steel Partners II, L.P. ("Steel"), beneficial owner of
approximately 747,080 shares of Sync common stock, of Steel's intention to
nominate Warren G. Lichtenstein, James R. Henderson, Robert B. Frankfurt and
Steven Wolosky as nominees to be elected to Sync's board of directors. Sync and
Entrada oppose the election of any individuals to Sync's board of directors
other than those individuals nominated by the Sync board of directors as set
forth in this proxy statement/prospectus.
OTHER MATTERS
Other than the matter described under the heading "Possible Stockholder
Proposal," the board of directors knows of no other matters to be submitted to
the meeting. If any other matters properly come before the meeting, then the
persons named in the enclosed form of proxy will vote the shares they represent
in such manner as the board may recommend.
DEADLINE FOR RECEIPT OF FUTURE STOCKHOLDER PROPOSALS
Proposals of Sync stockholders that are intended to be presented by such
stockholders at Sync's 2001 Annual Meeting of Stockholders must be received by
Sync no later than the anniversary date of this year's proxy mailing minus
120 days in order that they may be considered for inclusion in the proxy
statement and form of proxy relating to that meeting. In addition, Sync's bylaws
provide an advance notice procedure for matters to be presented before an annual
meeting of stockholders. Therefore to be presented at Sync's 2001 annual
meeting, Sync must be notified in writing of a stockholder proposal on or after
June 1, 2001 but no later than August 10, 2001. All stockholder proposals should
be sent to the Secretary of Sync at 12 Morgan, Irvine, California 92618. In
addition, if Sync is not notified by the anniversary date of this year's proxy
mailing minus 45 days of a stockholder proposal, the proxies to be held by
management of Sync may provide discretionary authority to vote against such
stockholder's proposal, even though such proposal is not discussed in the proxy
statement.
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INFORMATION CONCERNING SYNC
Additional information concerning:
- the business of Sync
- Sync management's discussion and analysis of financial condition and
results of operation
- directors and executive officers
- executive compensation
- principal stockholders
- certain relationships and related transactions
- and other related matters concerning Sync
is included or incorporated by reference in Sync's annual report on Form 10-K
for the year ended December 31, 1999. As described below, Sync's annual report
on Form 10-K, as well as other documents that have been filed by Sync with the
Securities and Exchange Commission, are incorporated by reference into this
proxy statement/prospectus.
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DOCUMENTS INCORPORATED BY REFERENCE IN THIS
PROXY STATEMENT/PROSPECTUS
THIS PROXY STATEMENT/PROSPECTUS INCORPORATES DOCUMENTS BY REFERENCE WHICH
ARE NOT PRESENTED HEREIN OR DELIVERED HEREWITH.
All documents filed by Sync pursuant to Section 13(a), 13(c), 14 or 15(d) of
the Securities Exchange Act of 1934, after the date hereof and before the date
of the Sync annual meeting, are incorporated by reference into and are to be a
part of this proxy statement/prospectus from the date of filing of those
documents. The following documents, which have been filed by Sync with the
Securities and Exchange Commission, are incorporated by reference into this
proxy statement/prospectus:
- Sync's Annual Report on Form 10-K for the fiscal year ended December 31,
1999, a copy of which is being delivered to all holders of Sync common
stock in conjunction with this proxy statement/prospectus;
- Sync's Quarterly Report on Form 10-Q for the quarter ended March 31, 2000;
- Sync's Current Reports on Form 8-K filed on April 18, 2000 and May 19,
2000; and
- Sync's Registration Statement on Form 8-A (which describes Sync's common
stock), filed on October 10, 1995 and November 4, 1995.
Sync has not authorized anyone to provide you with information that is
different from what is contained in this proxy statement/prospectus. This proxy
statement/prospectus is dated August 7, 2000. You should not assume that the
information contained in the prospectus/proxy statement is accurate as of any
other date, and neither the mailing of this proxy statement/prospectus to
stockholders nor the issuance of Sync common stock in the merger should create
any implication to the contrary.
Any statement contained in a document incorporated or deemed to be
incorporated herein by reference will be deemed to be modified or superseded for
purposes of this proxy statement/prospectus to the extent that a statement
contained herein or any other subsequently filed document that is deemed to be
incorporated herein by reference modifies or supersedes the statement. Any
statement so modified or superseded will not be deemed, except as so modified or
superseded, to constitute a part of this proxy statement/prospectus.
TRADEMARKS
Sync and the Sync logo are registered trademarks or trade names of Sync.
Entrada is a registered trade name of Entrada.
This proxy statement/prospectus also includes trade names and trademarks of
companies other than Sync or Entrada. The use of any such third party trade name
or trademark herein is in editorial fashion only, and to the benefit of the
owner thereof, with no intention of commercial use or infringement of such trade
name or trademark.
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WHERE YOU CAN FIND MORE INFORMATION
Sync files reports, proxy statements and other information with the
Securities and Exchange Commission. Copies of Sync's reports, proxy statements
and other information may be inspected and copied at the public reference
facilities maintained by the Securities and Exchange Commission at:
<TABLE>
<S> <C> <C>
Judiciary Plaza Citicorp Center Seven World Trade Center
Room 1024 500 West Madison Street 13th Floor
450 Fifth Street, N.W. Suite 1400 New York, New York 10048
Washington, D.C. 20549 Chicago, Illinois 60661
</TABLE>
Reports, proxy statements and other information concerning Sync may be
inspected at:
The National Association of
Securities Dealers
1735 K Street, N.W.
Washington, D.C. 20006
Copies of these materials can also be obtained by mail at prescribed rates
from the Public Reference Section of the Securities and Exchange Commission, 450
Fifth Street, N.W., Washington, D.C. 20549 or by calling the Commission at
l-800-SEC-0330. The Securities and Exchange Commission maintains a website that
contains reports, proxy statements and other information regarding each of us.
The address of the Securities and Exchange Commission website is
http://www.sec.gov.
Sync has filed a registration statement on Form S-4 under the Securities Act
of 1933 with the Securities and Exchange Commission with respect to Sync's
common stock to be issued to Parent in the merger. This proxy
statement/prospectus constitutes the proxy statement/prospectus of Sync filed as
part of the registration statement. This proxy statement/prospectus does not
contain all of the information set forth in the registration statement because
certain parts of the registration statement are omitted in accordance with the
rules and regulations of the Securities and Exchange Commission. The
registration statement and its exhibits are available for inspection and copying
as set forth above.
The documents incorporated by reference into this proxy statement/prospectus
are available from us upon request. We will provide a copy of any and all of the
information that is incorporated by reference in this proxy statement/prospectus
(not including exhibits to the information unless those exhibits are
specifically incorporated by reference into this proxy statement/prospectus) to
any person, without charge, upon written or oral request. ANY REQUEST FOR
DOCUMENTS SHOULD BE MADE BY AUGUST 18, 2000 TO ENSURE TIMELY DELIVERY OF THE
DOCUMENTS.
If you have any questions about the merger, please contact our Investor
Relations department as follows:
Ms. Gloria Corken
Investor Relations
Sync Research, Inc.
12 Morgan
Irvine, CA 92618
Telephone: (949) 588-2070
THIS PROXY STATEMENT/PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR A
SOLICITATION OF AN OFFER TO PURCHASE, THE SECURITIES OFFERED BY THIS PROXY
STATEMENT/PROSPECTUS, OR THE SOLICITATION OF A PROXY, IN ANY JURISDICTION TO OR
FROM ANY PERSON TO WHOM OR FROM WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER,
SOLICITATION OF AN OFFER OR PROXY SOLICITATION IN SUCH JURISDICTION. NEITHER THE
DELIVERY OF THIS PROXY STATEMENT/PROSPECTUS NOR ANY DISTRIBUTION OF SECURITIES
PURSUANT TO THIS PROXY STATEMENT/PROSPECTUS SHALL, UNDER ANY CIRCUMSTANCES,
CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE INFORMATION SET
FORTH OR INCORPORATED INTO THIS PROXY STATEMENT/PROSPECTUS BY REFERENCE OR IN
OUR AFFAIRS SINCE THE DATE OF THIS PROXY STATEMENT/PROSPECTUS. THE INFORMATION
CONTAINED IN THIS PROXY STATEMENT/PROSPECTUS WITH RESPECT TO SYNC AND ITS
SUBSIDIARIES WAS PROVIDED BY SYNC AND THE INFORMATION CONTAINED IN THIS PROXY
STATEMENT/PROSPECTUS WITH RESPECT TO ENTRADA WAS PROVIDED BY ENTRADA.
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STATEMENTS REGARDING FORWARD-LOOKING INFORMATION
This proxy statement/prospectus contains forward-looking statements within
the "safe harbor" provisions of the Private Securities Litigation Reform Act of
1995 with respect to our financial condition, results of operations and
business, and on the expected impact of the merger on Sync's financial
performance. Words such as "anticipates," "expects," "intends," "plans,"
"believes," "seeks," "estimates" and similar expressions identify
forward-looking statements. These forward-looking statements are not guarantees
of future performance and are subject to risks and uncertainties that could
cause actual results to differ materially from the results contemplated by the
forward-looking statements. These risks and uncertainties include:
- the possibility that the merger will not be consummated
- the possibility that the anticipated benefits from the merger cannot be
fully realized
- the possibility that costs or difficulties related to the integration of
our businesses are greater than expected
- our dependence on the timely development, introduction and customer
acceptance of new products
- the impact of competition on revenues and margins
- rapidly changing technology and shifting demand requirements
- other risks and uncertainties, including the risks and uncertainties
involved in obtaining new customers, the impact of competitive services,
products and prices, the unsettled conditions in the high-technology
business and the ability to attract and retain key personnel
- other risk factors as may be detailed from time to time in Sync's and
Entrada's public announcements and filings with the Securities and
Exchange Commission.
In evaluating the merger, you should carefully consider the discussion of
these and other factors in the section entitled "Risk Factors" beginning on page
16 of this proxy statement/prospectus.
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INDEX TO ENTRADA FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Consolidated Balance Sheets as of January 31, 2000 and
1999...................................................... F-3
Consolidated Statements of Operations for the years ended
January 31, 2000, 1999 and 1998........................... F-4
Consolidated Statements of Stockholder's Equity (Deficit)
for the years ended January 31, 2000, 1999 and 1998....... F-5
Consolidated Statements of Cash Flows for the years ended
January 31, 2000, 1999 and 1998........................... F-6
Notes to Consolidated Financial Statements.................. F-7
Consolidated Balance Sheet (Unaudited) at April 30, 2000.... F-18
Consolidated Statements of Operations (Unaudited) for the
three months ended April 30, 2000 and 1999................ F-19
Consolidated Statements of Stockholder's Equity (Deficit)
(Unaudited) for the three months ended April 30, 2000..... F-20
Consolidated Statements of Cash Flows (Unaudited) for the
three months ended April 30, 2000 and 1999................ F-21
Notes to Consolidated Financial Statements.................. F-22
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Shareholder of
Osicom Technologies, Inc.
We have audited the accompanying balance sheets of Osicom
Technologies, Inc. (a Delaware corporation, f/k/a Cray Communications, Inc.,
doing business as Entrada Networks) ("Entrada"), a wholly-owned subsidiary of
Osicom Technologies, Inc. (a New Jersey corporation), as of January 31, 2000 and
1999 and the related statements of operations, stockholder's deficit, and cash
flows for each of the years ended January 31, 2000, 1999 and 1998. These
financial statements are the responsibility of Entrada's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. 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 our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Entrada as of January 31,
2000 and 1999, and the results of its operations and its cash flows for each of
the years ended January 31, 2000, 1999 and 1998 in conformity with generally
accepted accounting principles.
/s/ BDO SEIDMAN LLP
--------------------------------------
BDO Seidman LLP
Los Angeles, California
March 23, 2000
F-2
<PAGE>
ENTRADA NETWORKS
A SUBSIDIARY OF OSICOM TECHNOLOGIES, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
JANUARY 31, 2000 JANUARY 31, 1999
---------------- ----------------
<S> <C> <C>
CURRENT ASSETS
Cash...................................................... $ 112 $ 198
Accounts receivable, net (Notes D and P).................. 5,919 6,328
Inventory, net (Notes B, D and P)......................... 6,041 4,493
Due from affiliates (Note K).............................. 753 475
Prepaid expenses and other current assets................. 563 150
-------- --------
TOTAL CURRENT ASSETS.................................... 13,388 11,644
PROPERTY AND EQUIPMENT, NET (Notes C, D and E).............. 1,384 790
OTHER ASSETS
Capitalized software, net (Note B)........................ 1,772 4,316
-------- --------
TOTAL ASSETS................................................ $ 16,544 $ 16,750
======== ========
LIABILITIES AND STOCKHOLDER'S EQUITY (DEFICIT)
CURRENT LIABILITIES
Short-term debt (Note D).................................. $ 2,264 $ 4,550
Current maturities of long-term debt (Note E)............. 312 121
Accounts payable.......................................... 4,381 3,458
Due to affiliates (Note K)................................ -- 186
Deferred revenue.......................................... 317 785
Accrued liabilities....................................... 1,905 1,478
-------- --------
TOTAL CURRENT LIABILITIES............................... 9,179 10,578
Long-term debt and capital lease obligations................ 302 154
Due to parent company (Note K).............................. 21,769 17,337
-------- --------
TOTAL LIABILITIES....................................... 31,250 28,069
STOCKHOLDER'S EQUITY (DEFICIT) (Note H)
Common stock--Class A, $1.00 par value, 41 shares
authorized, 1 shares issued and outstanding; Class B,
$1.00 par value, 9 shares authorized, none issued or
outstanding............................................. 1 1
Additional paid in capital................................ 5,761 5,761
Accumulated deficit....................................... (20,468) (17,081)
-------- --------
TOTAL STOCKHOLDER'S EQUITY (DEFICIT)........................ (14,706) (11,319)
-------- --------
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY (DEFICIT)........ $ 16,544 $ 16,750
======== ========
</TABLE>
See accompanying notes to financial statements.
F-3
<PAGE>
ENTRADA NETWORKS
A SUBSIDIARY OF OSICOM TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 31,
------------------------------
2000 1999 1998
-------- -------- --------
<S> <C> <C> <C>
Net Sales................................................... $28,771 $29,007 $30,624
Cost of Sales............................................... 17,498 16,043 17,061
------- ------- -------
Gross Profit............................................ 11,273 12,964 13,563
------- ------- -------
Selling and marketing....................................... 5,647 8,329 8,974
Engineering, research and development....................... 6,223 5,503 3,546
General and administrative.................................. 2,177 2,270 3,611
Other operating expenses (Note B)........................... -- -- 3,873
------- ------- -------
Total operating expenses................................ 14,047 16,102 20,004
------- ------- -------
Loss from operations........................................ (2,774) (3,138) (6,441)
Interest expense............................................ (613) (578) (513)
------- ------- -------
Loss before income taxes.................................... (3,387) (3,716) (6,954)
Provision for income taxes (Note I)......................... -- -- --
------- ------- -------
Net loss.................................................... $(3,387) $(3,716) $(6,954)
======= ======= =======
Income (loss) per share (Note J):
Basic
Weighted average common shares outstanding.............. 1 1 1
Basic net loss per share................................ $(3,387) $(3,716) $(6,954)
======= ======= =======
Diluted
Weighted average common shares outstanding.............. 1 1 1
Diluted net loss per share.............................. $(3,387) $(3,716) $(6,954)
======= ======= =======
</TABLE>
See accompanying notes to financial statements.
F-4
<PAGE>
ENTRADA NETWORKS
A SUBSIDIARY OF OSICOM TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY (DEFICIT)
(IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL TOTAL
------------------- PAID IN ACCUMULATED STOCKHOLDER'S
SHARES AMOUNT CAPITAL DEFICIT EQUITY
-------- -------- ---------- ----------- -------------
<S> <C> <C> <C> <C> <C>
BALANCE AT JANUARY 31, 1997................. 1 $1 $5,761 $ (6,411) $ (649)
Net loss.................................... (6,954) (6,954)
-- -- ------ -------- --------
BALANCE AT JANUARY 31, 1998................. 1 1 5,761 (13,365) (7,603)
Net loss.................................... (3,716) (3,716)
-- -- ------ -------- --------
BALANCE AT JANUARY 31, 1999................. 1 1 5,761 (17,081) (11,319)
Net loss.................................... (3,387) (3,387)
-- -- ------ -------- --------
BALANCE AT JANUARY 31, 2000................. 1 $1 $5,761 $(20,468) $(14,706)
== == ====== ======== ========
</TABLE>
See accompanying notes to financial statements.
F-5
<PAGE>
ENTRADA NETWORKS
A SUBSIDIARY OF OSICOM TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 31,
------------------------------
2000 1999 1998
-------- -------- --------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss.................................................. $(3,387) $(3,716) $(6,954)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization........................... 1,796 1,501 772
Accounts receivable and inventory reserves.............. 979 1,826 1,280
Intangible asset valuation allowance (Note B)........... 1,818 -- 3,750
Changes in assets and liabilities:
(Increase) decrease in accounts receivable.............. 366 (1,528) (1,132)
Increase in due from affiliates......................... (278) (457) (18)
(Increase) decrease in inventories...................... (1,442) 588 (4,203)
(Increase) decrease in other current assets............. (413) 95 (19)
Increase (decrease) in accounts payable................. 923 (490) 1,944
Increase (decrease) in due to affiliates................ (186) 159 28
Increase (decrease) in accrued expenses................. 426 (812) 712
Increase (decrease) in other current liabilities........ (468) 74 161
------- ------- -------
NET CASH USED IN OPERATING ACTIVITIES................... 134 (2,760) (3,679)
------- ------- -------
CASH FLOWS USED IN INVESTING ACTIVITIES:
Purchase of property and equipment........................ (239) (567) (654)
Software development costs................................ (318) (1,297) (1,324)
------- ------- -------
NET CASH USED IN INVESTING ACTIVITIES................... (557) (1,864) (1,978)
------- ------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Advances from parent company.............................. 2,285 4,882 3,243
Proceeds from short-term debt, net of repayments (Note
D)...................................................... (2,286) (476) 2,539
Proceeds from long-term debt (Note E)..................... 600 285 126
Repayment of long-term debt (Note E)...................... (262) (115) (25)
------- ------- -------
NET CASH PROVIDED BY FINANCING ACTIVITIES............... 337 4,576 5,883
------- ------- -------
INCREASE(DECREASE) IN CASH AND CASH EQUIVALENTS............. (86) (48) 226
CASH AND CASH EQUIVALENTS--BEGINNING OF PERIOD.............. 198 246 20
------- ------- -------
CASH AND CASH EQUIVALENTS--END OF PERIOD.................... $ 112 $ 198 $ 246
======= ======= =======
</TABLE>
See accompanying notes to financial statements.
F-6
<PAGE>
ENTRADA NETWORKS
A SUBSIDIARY OF OSICOM TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
Entrada Networks (the "Company," "We," "Our," or "Us") designs,
manufactures, and markets products that provide access to and enhance the
performance of data and telecommunications networks, and is currently developing
products that provide connectivity for storage networks. Many of our products
are incorporated into the remote access and other server products of original
equipment manufacturers ("OEMs"). In addition, certain of our products are
deployed by telecommunications network operators, applications service
providers, internet service providers, and the operators of corporate local area
and wide area networks for the purpose of providing access to and transport
within their networks. We have our facility in Annapolis Junction, Maryland. In
addition, we have various sales offices located in the United States. We market
and sell our products and services directly to end users as well as through a
broad array of channels including system integrators, worldwide distributors,
value added resellers, original equipment manufacturers ("OEM's"),
telecommunication service providers and governmental agencies.
The accompanying financial statements are the responsibility of the
management of the Company.
A. THE COMPANY AND BASIS OF PRESENTATION
The Company, incorporated in Delaware in 1972, became a wholly owned
subsidiary of Osicom Technologies, Inc. ("Osicom" or "Parent") effective
June 30, 1996 in a transaction accounted for as a purchase in which the book
values of our assets and liabilities were adjusted to reflect their then market
value. During the periods covered by the financial statements, we operated as an
integral part of Osicom's overall operations and separate financial statements
were not prepared. These financial statements have been prepared from Osicom's
historical accounting records. The statements of operations may not be
indicative of the results of operations that would have resulted had we operated
as a stand-alone entity.
General and administrative expenses include, in addition to amounts incurred
by us, an amount that management considers to be a reasonable allocation of
general corporate expenses. Management and administrative salaries are allocated
based upon estimated time; all other allocations of general corporate expenses
were based upon specific identification of the relationship of our operations to
the total operations of Osicom. Management believes that such allocated general
expenses are representative of the expenses we will incur as a separate public
company, however, actual expenses may be higher or lower. Included in general
and administrative expenses are $220, $182 and $160 of allocated corporate
expenses for the fiscal years 2000, 1999, and 1998, respectively.
On April 11, 2000, Osicom entered into an agreement with Sync
Research, Inc. ("Sync"), a Nasdaq listed company, to exchange 100% of our
outstanding stock for a 50% interest in the merged corporation to be known as
Entrada Networks, Inc. The merger is subject to the approval of Sync's
shareholders and is expected to occur prior to September 2000.
B. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
USE OF ESTIMATES--The preparation of financial statements in conformity with
generally accepted accounting principles requires us to make estimates that
affect the reported amounts of assets, liabilities, revenues and expenses, the
disclosure of contingent assets and liabilities and the values of purchased
assets. Actual results could differ from these estimates.
F-7
<PAGE>
ENTRADA NETWORKS
A SUBSIDIARY OF OSICOM TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
B. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
ACCOUNTS RECEIVABLE--In the normal course of business, we extend unsecured
credit to our customers related to the sales of various products. Typically
credit terms require payment within thirty days from the date of shipment. We
evaluate and monitor the creditworthiness of each customer on a case-by-case
basis.
ALLOWANCE FOR DOUBTFUL ACCOUNTS--We provide an allowance for doubtful
accounts based on our continuing evaluation of our customers' credit risk. We
generally do not require collateral from our customers.
INVENTORY--Inventory, comprised of raw materials, work in process, finished
goods and spare parts, are stated at the lower of cost (first-in, first-out
method) or market. Inventories at January 31, 2000 and 1999 consist of:
<TABLE>
<CAPTION>
2000 1999
-------- --------
<S> <C> <C>
Raw materials............................................. $ 4,740 $ 3,673
Work in process........................................... 1,958 1,361
Spare parts............................................... 141 190
Finished goods............................................ 1,228 807
------- -------
8,067 6,031
Less: Valuation reserve................................... (2,026) (1,538)
------- -------
$ 6,041 $ 4,493
======= =======
</TABLE>
FAIR VALUE OF FINANCIAL INSTRUMENTS--The fair value of financial instruments
is determined by reference to various market data and other valuation techniques
as appropriate. We believe that there are no material differences between the
recorded book values of our financial instruments and their estimated fair value
PROPERTY AND EQUIPMENT--Property and equipment are recorded at historical
cost. Depreciation and amortization are provided over the estimated useful lives
of the individual assets or the terms of the leases if shorter using accelerated
and straight-line methods. Useful lives for property and equipment range from 3
to 7 years.
Capitalized leases are initially recorded at the present value of the
minimum payments at the inception of the contracts, with an equivalent liability
categorized as appropriate under current or non-current liabilities. Such assets
are depreciated on the same basis as described above. Interest expense, which
represents the difference between the minimum payments and the present value of
the minimum payments at the inception of the lease, is allocated to accounting
periods using a constant rate of interest over the lease.
Property and equipment are reviewed for impairment whenever events or
circumstances indicate that the asset's undiscounted expected cash flows are not
sufficient to recover its carrying amount. We measure impairment loss by
comparing the fair market value, calculated as the present value of expected
future cash flows, to its net book value. Impairment losses, if any, are
recorded currently.
F-8
<PAGE>
ENTRADA NETWORKS
A SUBSIDIARY OF OSICOM TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
B. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
SOFTWARE DEVELOPMENT--Software development costs where technological
feasibility has not been established are expensed in the period in which they
occurred, otherwise, development costs that will become an integral part of our
products are deferred in accordance with Statement of Financial Accounting
Standards Nos. 2 and 86. The deferred costs are amortized using the
straight-line method over the remaining estimated economic life of the product
or the ratio that current revenues for the product bear to the total of current
and anticipated future revenues for that product. Amortization expense for the
years ended January 31, 2000, 1999 and 1998 was $1,043, $668 and $7,
respectively, over 3 to 5 years. Accumulated amortization was $727 and $675 as
of January 31, 2000 and 1999, respectively.
The recoverability of capitalized software costs are reviewed on an ongoing
basis primarily based upon projections of discounted future operating cash flows
from each software product line. The excess amount, if any, of the remaining net
book value over the calculated amount is fully reserved. During the quarter
ended January 31, 2000 we recorded a reduction to the net book value of our
capitalized software development costs of $1,818, recorded as engineering
expense, to reflect the decline in the net realizable value of these assets as a
result of changing market conditions.
PURCHASED TECHNOLOGY--Technology assets were recorded in connection with
Osicom's acquisition during the year ended January 31, 1997. The discounted
projected future cash flow from proven technology and software were capitalized
and amortized over their remaining estimated economic life (7 years) using the
straight-line method.
We assess the recoverability of purchased technology primarily by
determining whether the amortization of the net book value of purchased
technology over its remaining life can be recovered through undiscounted future
operating cash flows of the acquired operation. The amount of the impairment, if
any, of the net book value of the excess cost over net assets acquired is
measured by determining the fair value of these assets primarily based on
projected discounted future operating cash flows from the purchased technologies
using a discount rate commensurate with our cost of capital. During the quarter
ended July 31, 1997, we recorded reductions to the net book value of purchased
technology of $3,750 to reflect the decline in the fair value of these assets as
the result of changing market conditions. This reduction has been included in
Other operating expenses.
RESEARCH AND DEVELOPMENT--We expense research and development costs as
incurred in accordance with Statement of Financial Accounting Standards ("SFAS")
No. 2, "Accounting for Research and Development Costs". Research and development
costs are costs associated with products or processes for which technological
feasibility has not been proven and future benefits are uncertain. In-process
research and development purchased by us includes the value of products and
processes in the development stage and have not reached technological
feasibility; this amount is expensed at the date of purchase.
REVENUE RECOGNITION--We generally recognize product revenue when the
products are shipped, all substantial contractual obligations, if any, have been
satisfied, and the collection of the resulting receivable is reasonably assured.
Revenue from installation is recognized as the services are performed to the
extent of the direct costs incurred. To date, installation revenue has not been
material. Revenue
F-9
<PAGE>
ENTRADA NETWORKS
A SUBSIDIARY OF OSICOM TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
B. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
from service obligations, if any, is deferred and recognized over the life of
the contract. Inventory or demonstration equipment shipped to potential
customers for field trials is not recorded as revenue. We accrue for warranty
costs, sales returns and other allowances at the time of shipment. Although our
products contain a software component, the software is not sold separately and
we are not contractually obligated to provide software upgrades to our
customers.
WARRANTY AND CUSTOMER SUPPORT--We typically warrant our products against
defects in materials and workmanship for a period of one to five years from the
date of sale and a provision for estimated future warranty and customer support
costs is recorded when revenue is recognized. To date, warranty and customer
support costs have not been material.
INCOME TAXES--Income taxes are accounted for in accordance with Statement of
Financial Accounting Standards No. 109 "Accounting for Income Taxes." The
statement employs an asset and liability approach for financial accounting and
reporting of deferred income taxes generally allowing for recognition of
deferred tax assets in the current period for future benefit of net operating
loss and research credit carryforwards as well as items for which expenses have
been recognized for financial statement purposes but will be deductible in
future periods. A valuation allowance is recognized, if on the weight of
available evidence it is more likely than not that some portion or all of the
deferred tax assets will not be realized. (See Note I).
ADVERTISING--We expense advertising expenditures as incurred. Advertising
expenses consist of allowances given to customers as well as direct
expenditures. Advertising expenses for fiscal 2000, 1999 and 1998 were $11,
$536, and $290, respectively.
INCOME AND LOSS PER COMMON SHARE--Statement of Financial Accounting
Standards ("SFAS") No. 128, "Earnings Per Share," requires dual presentation of
basic and diluted earnings per share ("EPS") on the face of the income
statement. It also requires a reconciliation of the numerator and denominator of
the basic EPS computation to the numerator and denominator of the diluted EPS
computation. (See Note M). Basic income and loss per common share is computed by
dividing net income or loss available to common shareholders by the weighted
average number of common shares outstanding during each period presented.
Diluted EPS is based on the weighted average number of common shares outstanding
as well as dilutive potential common shares, which in our case was none.
Potential common shares would not be included in the diluted loss per share
computation for fiscal 2000, 1999 and 1998 as they would be anti-dilutive.
DERIVATIVE INSTRUMENTS--SFAS No. 133, "Accounting for Derivative Instruments
and Hedging Activities," is effective for financial statements with fiscal
quarters of all fiscal years beginning after June 15, 2000. The statement
establishes standards for accounting for derivatives and hedging instruments of
which we currently have none. We do not expect the adoption of SFAS No. 133 to
have a material effect, if any, on our financial position or results of
operations.
COMPUTER SOFTWARE FOR INTERNAL USE--The Accounting Standards Executive
Committee issued Statement of Position ("SOP") 98-1, "Accounting for the Costs
of Computer Software Developed or Obtained for Internal Use," is effective for
financial statements with fiscal years beginning after
F-10
<PAGE>
ENTRADA NETWORKS
A SUBSIDIARY OF OSICOM TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
B. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
December 15, 1998. The SOP provides guidance on accounting for the costs of
computer software developed or obtained for internal use. The SOP requires that
we continue to capitalize certain costs of software developed for internal use
once certain criteria are met. The adoption of SOP 98-1 had no effect on our
financial position or results of operations.
START-UP COSTS--Statement of Opinion 98-5, "Reporting on the Costs of
Start-up Activities," is effective for financial statements for fiscal years
beginning after December 31, 1998. The SOP provides guidance and examples of the
types of expenses associated with one-time (start-up) activities which under
this SOP must be expensed as incurred. The adoption of SOP 98-5 had no effect on
our financial position or results of operations.
C. PROPERTY AND EQUIPMENT
Property and equipment of the Company consisted of the following components
as of January 31, 2000 and 1999:
<TABLE>
<CAPTION>
2000 1999
-------- --------
<S> <C> <C>
Manufacturing, engineering and plant equipment and
software.............................................. $ 14,674 $ 14,023
Office furniture and fixtures........................... 916 949
Leasehold and building improvements..................... 459 233
-------- --------
Total property and equipment.......................... 16,049 15,205
Less: Accumulated depreciation.......................... (14,665) (14,415)
-------- --------
Net book value........................................ $ 1,384 $ 790
======== ========
</TABLE>
Depreciation expense for fiscal 2000, 1999 and 1998 was $751, $834 and $642,
respectively.
D. SHORT TERM DEBT
Short term debt at January 31, 2000 and 1999 consisted of the following:
<TABLE>
<CAPTION>
2000 1999
-------- --------
<S> <C> <C>
Floating interest rate loan (2.5% over lender's prime rate)
secured by all of our tangible assets; weighted average
interest rate for the year ended January 31, 2000 was
13.4%..................................................... $2,264 $4,550
====== ======
</TABLE>
We have a $7,000 line of credit collateralized by substantially all our
assets including accounts receivable, inventory and property and equipment and a
guarantee by our parent. Advances are limited to 75% of eligible receivables and
30% of eligible inventory. The loan bears interest at 2.5% over the lender's
prime rate but not less than 8%; the interest rate on the line of credit was
11.0% at January 31, 2000. The agreement automatically renews for successive one
year terms on a continuous basis at February 1st of each year unless terminated
by written notice of either party or by default. The highest amount outstanding
was $5,283 and $4,730 during fiscal years 2000 and 1999, respectively. The
average amount outstanding was $4,156 and $4,059 during fiscal years 2000 and
1999, respectively.
We are in compliance with our debt covenants at January 31, 2000.
F-11
<PAGE>
ENTRADA NETWORKS
A SUBSIDIARY OF OSICOM TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
E. LONG TERM DEBT
Long term debt at January 31, 2000 and 1999 consisted of the following:
<TABLE>
<CAPTION>
2000 1999
-------- --------
<S> <C> <C>
Floating interest rate term loans (2.5% over Coast's prime
rate) secured by machinery and equipment; interest rate
for year ended January 31, 2000 was 11.0%................. $345 $ --
Obligations under finance leases (See Note F)............... 269 275
---- ----
614 275
Less: Current portion....................................... 312 121
---- ----
$302 $154
==== ====
</TABLE>
Long term debt including capitalized leases at January 31, 2000 is payable
by year as follows:
<TABLE>
<S> <C>
2001.. $312
2002.. 259
2003.. 43
----
$614
====
</TABLE>
F. LEASES AND OTHER COMMITMENTS
Rental expense under operating leases was $672, $1,147 and $1,031 for fiscal
2000, 1999, and 1998, respectively. The table below sets forth minimum payments
under capital and operating leases with remaining terms in excess of one year,
at January 31, 2000:
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
-------- ---------
<S> <C> <C>
2001....................................................... $172 $ 561
2002....................................................... 102 546
2003....................................................... 21 480
2004....................................................... -- 840
---- ------
295 $2,427
------
Less: Amount representing interest......................... (26)
----
Present value of minimum annual rentals.................... $269
====
</TABLE>
The net book value of equipment under capital leases was $331 and $269 at
January 31, 2000 and 1999, respectively.
G. LITIGATION
We are involved in various other legal proceedings and claims incidental to
the normal conduct of our business. Although it is impossible to predict the
outcome of any outstanding legal proceedings, we
F-12
<PAGE>
ENTRADA NETWORKS
A SUBSIDIARY OF OSICOM TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
G. LITIGATION (CONTINUED)
believe that such legal proceedings and claims, individually and in the
aggregate, are not likely to have a material effect on our financial position,
the results of operations or cash flows.
H. STOCKHOLDERS' EQUITY
We are authorized to issue the following shares of stock:
41,000 shares of Common Stock--Class A ($1.00 par value)
9,000 shares of Common Stock--Class B ($1.00 par value)
The Class B common stock is convertible on a one-for-one basis into Class A
common stock. The holders of Class A shares may elect eight directors separately
as a class while the holders of Class B shares may elect two directors
separately as a class. In any other matter voted upon by the shareholders, each
share of Class B has a 1/3 vote. The remaining rights, privileges of the two
classes of common stock are identical, including dividend and dissolution
rights.
I. INCOME TAXES
Our provisions for taxes on income for the years ended January 31, 2000,
1999 and 1998 consist of:
<TABLE>
<CAPTION>
2000 1999 1998
--------- --------- ---------
<S> <C> <C> <C>
Current.................................................... $ -- $ -- $ --
Deferred................................................... -- -- --
--------- --------- ---------
Total...................................................... $ -- $ -- $ --
========= ========= =========
</TABLE>
Our operations generate permanent and temporary differences for
depreciation, amortization, and valuation allowances. We have recorded a 100%
valuation allowance against our deferred tax assets, including net operating
loss and research credit carryforwards, in accordance with the provisions of
Statement of Financial Accounting Standards No. 109. Such allowance is
recognized if, based on the weight of available evidence, it is more likely than
not that some portion or all of the deferred tax assets will not be realized.
<TABLE>
<CAPTION>
2000 1999
-------- --------
<S> <C> <C>
Deferred tax assets:
Tax loss carryforwards.................................. $ 8,604 $ 8,297
Valuation allowances.................................... 990 859
Other................................................... 172 221
------- -------
Gross deferred tax assets............................. 9,766 9,377
Less: valuation allowance............................... (8,737) (8,021)
------- -------
Deferred tax asset.................................... 1,029 1,356
------- -------
Deferred tax liabilities:
Depreciation.......................................... 320 400
Software development costs............................ 709 956
------- -------
Deferred tax liabilities.............................. 1,029 1,356
------- -------
Net deferred tax liability................................ $ -- $ --
======= =======
</TABLE>
F-13
<PAGE>
ENTRADA NETWORKS
A SUBSIDIARY OF OSICOM TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
I. INCOME TAXES (CONTINUED)
At January 31, 2000, we have federal net operating losses which may be
available to reduce future taxable income. Among potential adjustments which may
reduce available loss carryforwards, the Internal Revenue Code of 1986, as
amended, (IRC), reduces the extent to which net operating loss carryforwards may
be utilized in the event there has been an "ownership change" of a company as
defined by applicable IRC provisions. We believe that the acquisition of 100% of
our outstanding stock in September, 1996 by Osicom resulted in such an ownership
change, and we intend to analyze the impact of this transfer on the continued
availability, for tax purposes, of our net operating losses incurred through
January 31, 2000. Further ownership changes in the future, as defined by the
IRC, may reduce the extent to which any net operating losses may be utilized.
These NOL carryforwards expire as follows:
<TABLE>
<S> <C>
2007........................................................ $ 2,840
2008........................................................ 1,888
2009........................................................ 2,270
2010........................................................ 3,034
2011........................................................ 2,477
2018........................................................ 3,855
2019........................................................ 5,715
2020........................................................ 1,785
-------
$23,864
=======
</TABLE>
The reconciliation between income tax expense and a theoretical United
States tax computed by applying a rate of 35% for the years ended January 31,
2000, 1999 and 1998, is as follows:
<TABLE>
<CAPTION>
2000 1999 1998
-------- -------- --------
<S> <C> <C> <C>
Loss before income taxes.......................... $(3,387) $(3,716) $(6,954)
======= ======= =======
Theoretical tax (benefit) at 35%.................. $(1,185) $(1,301) $(2,434)
Impact of purchase accounting..................... -- -- 1,365
Change in valuation allowance..................... 1,185 1,301 1,069
------- ------- -------
$ -- $ -- $ --
======= ======= =======
</TABLE>
J. EARNINGS PER SHARE CALCULATION
We incurred a net loss for fiscal years 2000, 1999 and 1998. Accordingly,
dilutive potential common shares which we have none would not be included in the
calculation of earnings per share because their
F-14
<PAGE>
ENTRADA NETWORKS
A SUBSIDIARY OF OSICOM TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
J. EARNINGS PER SHARE CALCULATION (CONTINUED)
effect would be antidilutive. The following data show the amounts used in
computing basic and diluted earnings per share.
<TABLE>
<CAPTION>
2000 1999 1998
-------- -------- --------
<S> <C> <C> <C>
Net loss.......................................... $(3,387) $(3,716) $(6,954)
Adjustments....................................... -- -- --
------- ------- -------
Net loss available to common shareholder used in
basic and diluted EPS........................... $(3,387) $(3,716) $(6,954)
======= ======= =======
Average number of common shares used in basic and
diluted EPS..................................... 1,000 1,000 1,000
======= ======= =======
</TABLE>
We have no stock option plans, however many of our employees hold options
granted under our parent's stock option plans. All options were granted at not
less than fair market value on the date of grant. Under these plans, options
generally vest over a two-year to four-year period from the date of grant.
K. RELATED PARTY TRANSACTIONS
From time to time we have received non-interest bearing advances from our
parent, including payment of various expense on our behalf and transfer of
assets from other subsidiaries of our parent which are used in our business. The
balance due our parent, included in non-current liabilities in the accompanying
financial statements, was $21,769 and $17,337 at January 31, 2000 and 1999,
respectively. The merger agreement entered into by our parent provides that the
balance due at closing will be contributed to our capital and we will have no
remaining debt outstanding due our parent.
We manufacture assemblies for the Optical Networking business of our parent,
purchase components for as well as purchase assemblies from our parent's former
subsidiary located in Hong Kong, and purchased inventory from as well as
reimbursed engineering, occupancy and manufacturing support expenses to our
parent's former subsidiary, NETsilicon, Inc. The following data show the amounts
of these transactions with our affiliates.
<TABLE>
<CAPTION>
2000 1999 1998
-------- -------- --------
<S> <C> <C> <C>
Sales to Optical Networking.......................... $ 735 $ 506 $110
Component sales to foreign affiliate................. 1,678 38 7
Purchases from foreign affiliate..................... 1,714 1,017 510
Purchases from NETsilicon, Inc....................... 564 953 --
Expenses reimbursed to NETsilicon, Inc............... 593 854 --
</TABLE>
F-15
<PAGE>
ENTRADA NETWORKS
A SUBSIDIARY OF OSICOM TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
K. RELATED PARTY TRANSACTIONS (CONTINUED)
Balances due to and from our affiliates, included in current liabilities and
assets in the accompany financial statements, at January 31, 1999 and 2000
consist of:
<TABLE>
<CAPTION>
2000 1999
-------- --------
<S> <C> <C>
Due from Optical Networking................................. $427 $475
Due from foreign affiliate.................................. 326 --
---- ----
Due from affiliates....................................... $753 $475
==== ====
Due to foreign affiliate.................................... $ -- $186
---- ----
Due to affiliates......................................... $ -- $186
==== ====
</TABLE>
L. SUPPLEMENTAL CASH FLOW DISCLOSURES
Interest expense and taxes paid approximated the related expenses for the
years ended January 31, 2000, 1999 and 1998.
Assets transferred to us from our affiliates neither provided nor used cash.
Accordingly, assets with net book values of $2,147, $577 and $1,348 were
excluded from the statements of cash flows for fiscal 2000, 1999 and 1998,
respectively.
M. CONCENTRATIONS OF CREDIT RISK
Financial instruments that potentially subject us to concentrations of
credit risk consist primarily of temporary cash investments and trade
receivables. As regards the former, we place its temporary cash investments with
high credit financial institutions and limits, by policy, the amount of credit
exposure to any one institution. No accounts at a single bank accounted for more
than 10% of current assets.
Concentrations of credit risk with respect to trade receivables are limited
because there is a large number of customers in our customer base spread across
many industries and geographic areas. Three customers each accounted for 19.4%,
18.7%, and 13.7% of fiscal 2000 net sales. One customer accounted for 16.3% of
fiscal 1999 net sales. One customer accounted for 16.1% of fiscal 1998 net
sales. At January 31, 2000 one customer accounted for 39.4% of net receivables.
At January 31, 1999 one customer accounted for 29.7% of net receivables.
N. SUBSEQUENT EVENTS
On April 11, 2000, Osicom entered into an agreement with Sync
Research, Inc. ("Sync"), a Nasdaq listed company, to exchange 100% of our
outstanding stock for a 50% interest in the merged corporation to be known as
Entrada Networks, Inc. The merger is subject to the approval of Sync's
shareholders and is expected to occur prior to September 2000. The merger
agreement provides that the balance due Osicom at closing will be contributed to
our capital and we will have no remaining debt outstanding due Osicom. Sync
develops, manufactures, markets and sells frame relay circuit management
solutions, multi-service frame relay access and routing solutions, and a series
of digital transmission products.
F-16
<PAGE>
ENTRADA NETWORKS
A SUBSIDIARY OF OSICOM TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
O. SEGMENT INFORMATION
We operate in one business segment. Enterprise wide information regarding
our geographical concentrations is as follows. Export sales and certain income
and expense items are reported in the geographic area where the final sales to
customers are made, rather than where the transaction originates.
<TABLE>
<CAPTION>
2000 1999 1998
-------- -------- --------
<S> <C> <C> <C>
Net sales:
United States.................................. $27,827 $27,516 $29,840
Europe......................................... 510 1,010 582
Asia........................................... 78 195 128
Other.......................................... 356 286 74
Inter-area eliminations........................ -- -- --
------- ------- -------
Total net sales.............................. $28,771 $29,007 $30,624
======= ======= =======
</TABLE>
P. VALUATION AND QUALIFYING ACCOUNTS
Changes in the inventory valuation reserve were as follows:
<TABLE>
<S> <C>
Balance at February 1, 1997................................. $ 3,582
Additions charged to costs and expenses................... 1,100
Amounts used during year.................................. (1,533)
-------
Balance at January 31, 1998................................. 3,149
Additions charged to costs and expenses................... 1,416
Amounts used during year.................................. (3,027)
-------
Balance at January 31, 1999................................. 1,538
Additions charged to costs and expenses................... 936
Amounts used during year.................................. (448)
-------
Balance at January 31, 2000................................. $ 2,026
=======
</TABLE>
Changes in the accounts receivable valuation reserve were as follows:
<TABLE>
<S> <C>
Balance at February 1, 1997................................. $ 352
Additions charged to costs and expenses................... 180
Amounts used during year.................................. (62)
-----
Balance at January 31, 1998................................. 470
Additions charged to costs and expenses................... 410
Amounts used during year.................................. (270)
-----
Balance at January 31, 1999................................. 610
Additions charged to costs and expenses................... 43
Amounts used during year.................................. (204)
-----
Balance at January 31, 2000................................. $ 449
=====
</TABLE>
F-17
<PAGE>
ENTRADA NETWORKS
A SUBSIDIARY OF OSICOM TECHNOLOGIES, INC.
CONSOLIDATED BALANCE SHEET
(IN THOUSANDS)
<TABLE>
<CAPTION>
APRIL 30, 2000
---------------
(UNAUDITED)
<S> <C>
CURRENT ASSETS
Accounts receivable, net.................................. $ 4,609
Inventory, net............................................ 3,486
Due from affiliates....................................... 427
Prepaid expenses and other current assets................. 370
--------
TOTAL CURRENT ASSETS.................................... 8,892
PROPERTY AND EQUIPMENT, NET................................. 1,554
OTHER ASSETS
Capitalized software, net................................. 1,075
--------
TOTAL ASSETS................................................ $ 11,521
========
LIABILITIES AND STOCKHOLDER'S EQUITY (DEFICIT)
CURRENT LIABILITIES
Bank overdraft............................................ $ 176
Short-term debt........................................... 2,198
Current maturities of long-term debt...................... 301
Accounts payable.......................................... 2,786
Deferred revenue.......................................... 393
Accrued liabilities....................................... 2,665
--------
TOTAL CURRENT LIABILITIES............................... 8,519
Long-term debt and capital lease obligations................ 252
Due to parent company....................................... 24,523
--------
TOTAL LIABILITIES....................................... 33,294
STOCKHOLDER'S EQUITY (DEFICIT)
Common stock--Class A, $1.00 par value, 41 shares
authorized, 1 share issued and outstanding; Class B,
$1.00 par value, 9 shares authorized, none issued or
outstanding............................................. 1
Additional paid in capital................................ 5,761
Accumulated deficit....................................... (27,535)
--------
TOTAL STOCKHOLDER'S EQUITY (DEFICIT)........................ (21,773)
--------
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY (DEFICIT)........ $ 11,521
========
</TABLE>
See accompanying notes to financial statements.
F-18
<PAGE>
ENTRADA NETWORKS
A SUBSIDIARY OF OSICOM TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
QUARTER ENDED
APRIL 30,
-------------------
2000 1999
-------- --------
<S> <C> <C>
Net Sales................................................... $ 3,710 $ 6,418
Cost of Sales............................................... 5,398 3,891
------- -------
Gross Profit.............................................. (1,688) 2,527
------- -------
Selling and marketing....................................... 1,034 1,134
Engineering, research and development....................... 1,650 1,250
General and administrative.................................. 530 696
Other operating expenses.................................... 2,069 --
------- -------
Total operating expenses.................................. 5,283 3,080
------- -------
Loss from operations........................................ (6,971) (553)
Interest expense............................................ (96) (152)
------- -------
Loss before income taxes.................................... (7,067) (705)
Provision for income taxes.................................. -- --
------- -------
Net loss.................................................... $(7,067) $ (705)
======= =======
Income (loss) per share
Basic
Weighted average common shares outstanding.............. 1 1
Basic net loss per share................................ $(7,067) $ (705)
======= =======
Diluted
Weighted average common shares outstanding.............. 1 1
Diluted net loss per share.............................. $(7,067) $ (705)
======= =======
</TABLE>
See accompanying notes to financial statements.
F-19
<PAGE>
ENTRADA NETWORKS
A SUBSIDIARY OF OSICOM TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY (DEFICIT)
(IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL TOTAL
------------------- PAID IN ACCUMULATED STOCKHOLDER'S
SHARES AMOUNT CAPITAL DEFICIT EQUITY
-------- -------- ---------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Balance at January 31, 1997................. 1 $ 1 $5,761 $ (6,411) $ (649)
Net loss.................................... (6,954) (6,954)
--- ---- ------ -------- --------
Balance at January 31, 1998................. 1 1 5,761 (13,365) (7,603)
Net loss.................................... (3,716) (3,716)
--- ---- ------ -------- --------
Balance at January 31, 1999................. 1 1 5,761 (17,081) (11,319)
Net loss.................................... (3,387) (3,387)
--- ---- ------ -------- --------
Balance at January 31, 2000................. 1 $ 1 $5,761 $(20,468) $(14,706)
Net loss.................................... (7,067) (7,067)
--- ---- ------ -------- --------
Balance at April 30, 2000................... 1 $ 1 $5,761 $(27,535) $(21,773)
=== ==== ====== ======== ========
</TABLE>
See accompanying notes to financial statements.
F-20
<PAGE>
ENTRADA NETWORKS
A SUBSIDIARY OF OSICOM TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
QUARTER ENDED
APRIL 30,
-------------------
2000 1999
-------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss.................................................. $(7,067) $ (705)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization........................... 482 439
Accounts receivable and inventory reserves.............. 4,296 95
Intangible asset valuation allowance.................... 435 --
Changes in assets and liabilities:
(Increase) decrease in accounts receivable............ (151) 342
Increase (decrease) in due from affiliates............ 326 (273)
Increase in inventories............................... (280) (659)
(Increase) decrease in other current assets........... 193 (136)
Decrease in accounts payable.......................... (1,595) (88)
Increase (decrease) in accrued expenses............... 760 (152)
Increase (decrease) in other current liabilities...... 76 (139)
------- -------
NET CASH USED IN OPERATING ACTIVITIES............... (2,525) (1,276)
------- -------
CASH FLOWS USED IN INVESTING ACTIVITIES:
Purchase of property and equipment........................ (51) (120)
Software development costs................................ -- (150)
------- -------
NET CASH USED IN INVESTING ACTIVITIES............... (51) (270)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Bank overdraft............................................ 176 --
Advances from parent company.............................. 2,414 2,055
Proceeds from short-term debt, net of repayments.......... (77) (548)
Proceeds from long-term debt.............................. -- 600
Repayment of long-term debt............................... (49) (10)
------- -------
NET CASH PROVIDED BY FINANCING ACTIVITIES........... 2,464 2,097
------- -------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS............ (112) 551
CASH AND CASH EQUIVALENTS--BEGINNING OF PERIOD.............. 112 198
------- -------
CASH AND CASH EQUIVALENTS--END OF PERIOD.................... $ -- $ 749
======= =======
</TABLE>
See accompanying notes to financial statements.
F-21
<PAGE>
ENTRADA NETWORKS
A SUBSIDIARY OF OSICOM TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
Entrada Networks (the "Company," "We," "Our," or "Us") designs, manufactures
and markets products that provide access to and enhance the performance of data
and telecommunications networks, and is currently developing products that
provide connectivity for storage networks. Many of our products are incorporated
into the remote access and other server products of original equipment
manufacturers ("OEMs"). In addition, certain of our products are deployed by
telecommunications network operators, applications service providers, internet
service providers, and the operators of corporate local area and wide area
networks for the purpose of providing access and transport within their
networks. We have our facility in Annapolis Junction, Maryland. In addition, we
have various sales offices located in the United States. We market and sell our
products and services directly to end users as well as through a broad array of
channels including system integrators, worldwide distributors, value added
resellers, original equipment manufacturers ("OEM's"), telecommunication service
providers and governmental agencies.
The accompanying consolidated financial statements are the responsibility of
the management of the Company.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The Company, incorporated in Delaware in 1972, became a wholly owned
subsidiary of Osicom Technologies, Inc. ("Osicom" or "Parent") effective
June 30, 1996 in a transaction accounted for as a purchase in which the book
values of our assets and liabilities were adjusted to reflect their then market
value. During the periods covered by the financial statements, we operated as an
integral part of Osicom's overall operations and separate financial statements
were not prepared. These financial statements have been prepared from Osicom's
historical accounting records. The statements of operations may not be
indicative of the results of operations that would have resulted had we operated
as a stand-alone entity.
The accompanying financial data as of April 30, 2000 and for
the quarters ended April 30, 2000 and 1999, have been prepared by us, without
audit, pursuant to the rules and regulations of the Securities and Exchange
Commission. Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to such rules and
regulations.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates that affect
the reported amounts of assets, liabilities, revenues and expenses, the
disclosure of contingent assets and liabilities. Actual results could differ
from these estimates. In the opinion of Management, all adjustments (which
include only normal recurring adjustments) necessary to present fairly the
financial position, results of operations and cash flows as of April 30, 2000
and for the quarters ended April 30, 2000 and 1999, have been made. The results
of operations for the quarters ended April 30, 2000 and 1999 are not necessarily
indicative of the operating results for the full year.
General and administrative expenses include, in addition to amounts incurred
by us, an amount that management considers to be a reasonable allocation of
general corporate expenses. Management and administrative salaries are allocated
based upon estimated time; all other allocations of general corporate expenses
were based upon specific identification of the relationship of our operations to
the
F-22
<PAGE>
ENTRADA NETWORKS
A SUBSIDIARY OF OSICOM TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
total operations of Osicom. Management believes that such allocated general
expenses are representative of the expenses we will incur as a separate public
company, however, actual expenses may be higher or lower.
On April 11, 2000, Osicom entered into an agreement with Sync
Research, Inc. ("Sync"), a Nasdaq listed company, to exchange 100% of our
outstanding stock for a 50% interest in the merged corporation to be known as
Entrada Networks, Inc. The merger is subject to the approval of Sync's
shareholders and is expected to occur prior to September 2000.
IMPACT OF RECENT ACCOUNTING PRONOUNCEMENTS
Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting
for Derivative Instruments and Hedging Activities," is effective for financial
statements with fiscal quarters of all fiscal years beginning after June 15,
2000. The Accounting Standards Executive Committee issued Statement of Position
("SOP") 98-1, "Accounting for the Costs of Computer Software Developed or
Obtained for Internal Use," and SOP 98-5, "Reporting on the Costs of Start-up
Activities," effective in the current or future periods. The adoption or future
adoption of these standards has had or will have no material effects, if any, on
our financial position or results of operations.
BALANCE SHEET DETAIL
Inventories at April 30, 2000 consist of:
<TABLE>
<CAPTION>
APRIL 30, 2000
---------------
<S> <C>
Raw material................................................ $4,782
Work in process............................................. 1,374
Spare parts................................................. 106
Finished goods.............................................. 1,826
------
8,088
Less: Valuation reserve..................................... (4,602)
------
$3,486
======
</TABLE>
STOCKHOLDERS' EQUITY
We are authorized to issue the following shares of stock:
41,000 shares of Common Stock--Class A ($1.00 par value)
9,000 shares of Common Stock--Class B ($1.00 par value)
The Class B common stock is convertible on a one-for-one basis into Class A
common stock. The holders of Class shares may elect eight directors separately
as a class while the holders of Class B shares may elect two directors
separately as a class. In other matters voted upon by the shareholders, each
share of Class B has a 1/3 vote. The remaining rights, privileges of the two
classes of common stock are identical, including dividend and dissolution
rights.
F-23
<PAGE>
ENTRADA NETWORKS
A SUBSIDIARY OF OSICOM TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
EARNINGS PER SHARE CALCULATION
We incurred a net loss for fiscal quarters ended April 30, 2000 and 1999.
Accordingly, dilutive potential common shares of which we have none, would not
be included in the calculation of earnings per share because their effect would
be antidilutive. The following data show the amounts used in computing basic and
diluted earnings per share.
<TABLE>
<CAPTION>
QUARTER ENDED
APRIL 30,
-------------------
2000 1999
-------- --------
<S> <C> <C>
Net loss.................................................... $(7,067) $(705)
Adjustments................................................. -- --
------- -----
Net loss available to common shareholder used in basic and
diluted EPS............................................... $(7,067) $(705)
======= =====
Average number of common shares used in basic and
diluted EPS............................................... 1,000 1,000
======= =====
</TABLE>
We have no stock option plans, however many of our employees hold options
granted under our parent's stock option plans. All options were granted at not
less than fair market value on the date of grant. Under these plans, options
generally vest over a two-year to four-year period from the date of grant.
CONCENTRATIONS OF CREDIT RISK
Financial instruments that potentially subject us to concentrations of
credit risk consist primarily of temporary cash investments and trade
receivables. As regards the former, we place its temporary cash investments with
high credit financial institutions and limits, by policy, the amount of credit
exposure to any one institution.
Although we are directly affected by the economic well being of significant
customers listed in the following tables, management does not believe that
significant credit risk exists at April 30, 2000. We perform ongoing evaluations
of our customers and require letters of credit or other collateral arrangements
as appropriate. Accordingly, trade credit losses have not been significant.
Customers accounting for more than 10% of net receivables:
<TABLE>
<CAPTION>
APRIL 30, 2000
---------------
<S> <C>
Customer A.................................................. 15.2%
Customer B.................................................. 19.7
Customer C.................................................. 10.9
</TABLE>
F-24
<PAGE>
ENTRADA NETWORKS
A SUBSIDIARY OF OSICOM TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
Customers accounting for more than 10% of net sales during the quarters
ended April 30, 2000 and 1999:
<TABLE>
<CAPTION>
QUARTER ENDED
APRIL 30,
----------------------
2000 1999
-------- --------
<S> <C> <C>
Customer A.................................................. -- 27.5%
Customer B.................................................. 21.2 --
Customer C.................................................. 19.9 --
</TABLE>
SEGMENT INFORMATION
We operate in one business segment. Enterprise wide information regarding
our geographical concentrations is as follows. Export sales and certain income
and expense items are reported in the geographic area where the final sales to
customers are made, rather than where the transaction originates.
<TABLE>
<CAPTION>
QUARTER ENDED
APRIL 30,
-------------------
2000 1999
-------- --------
<S> <C> <C>
Net sales:
United States............................................. $3,627 $6,207
Europe.................................................... 48 95
Asia...................................................... 19 15
Other..................................................... 16 101
------ ------
Total net sales......................................... $3,710 $6,418
====== ======
</TABLE>
F-25
<PAGE>
AMENDED AND RESTATED
AGREEMENT AND PLAN OF MERGER
BY AND BETWEEN
SYNC RESEARCH, INC.,
A DELAWARE CORPORATION
AND
OSICOM TECHNOLOGIES, INC.,
A NEW JERSEY CORPORATION
DATED AS OF
AUGUST 2, 2000
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
--------
<C> <S> <C>
ARTICLE I THE MERGER.................................................. A-1
1.1 The Merger.................................................. A-1
1.2 Closing..................................................... A-1
1.3 Effective Time.............................................. A-1
1.4 Certificate of Incorporation; By-laws....................... A-2
1.5 Officers and Directors...................................... A-2
1.6 Sync........................................................ A-2
1.7 Additional Matters.......................................... A-2
1.8 Lucent...................................................... A-2
1.9 Capitalization of Entrada................................... A-2
ARTICLE II EFFECT OF THE MERGER ON THE CAPITAL STOCK OF THE CONSTITUENT
CORPORATIONS................................................ A-3
2.1 Effect on Capital Stock..................................... A-3
2.2 Exchange Procedures......................................... A-3
2.3 Stock Transfer Books........................................ A-4
ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE SHAREHOLDER AND
ENTRADA..................................................... A-4
3.1 Corporate Organization...................................... A-4
3.2 Capitalization.............................................. A-4
3.3 Authorization, Etc.......................................... A-5
3.4 Financial Statements........................................ A-5
3.5 No Undisclosed Liabilities.................................. A-5
3.6 No Approvals or Conflicts................................... A-6
3.7 Compliance with Law; Governmental Authorizations............ A-6
3.8 Litigation.................................................. A-6
3.9 Assets...................................................... A-6
3.10 Absence of Certain Changes.................................. A-7
3.11 Taxes....................................................... A-7
3.12 Employee Benefits........................................... A-8
3.13 Labor Relations............................................. A-9
3.14 Patents, Trademarks, Trade Names, Etc....................... A-10
3.15 Contracts................................................... A-10
3.16 Environmental Matters....................................... A-11
3.17 Insurance................................................... A-11
3.18 Material Customers and Suppliers............................ A-12
</TABLE>
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3.19 Real Property............................................... A-12
3.20 Investment Company Act Status............................... A-13
3.21 Product Liability........................................... A-13
3.22 Books and Records........................................... A-13
3.23 No Brokers' or Other Fees................................... A-13
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF SYNC...................... A-14
4.1 Corporate Organization...................................... A-14
4.2 Capitalization.............................................. A-15
4.3 Authorization, Etc.......................................... A-15
4.4 Financial Statements........................................ A-15
4.5 No Undisclosed Liabilities.................................. A-15
4.6 No Approvals or Conflicts................................... A-15
4.7 Compliance with Law; Governmental Authorizations............ A-15
4.8 Litigation.................................................. A-16
4.9 Assets...................................................... A-16
4.10 Absence of Certain Changes.................................. A-16
4.11 Taxes....................................................... A-16
4.12 Employee Benefits........................................... A-17
4.13 Labor Relations............................................. A-18
4.14 Patents, Trademarks, Trade Names, Etc....................... A-18
4.15 Contracts................................................... A-19
4.16 Environmental Matters....................................... A-19
4.17 Insurance................................................... A-20
4.18 Material Customers and Suppliers............................ A-20
4.19 Real Property............................................... A-20
4.20 Investment Company Act Status............................... A-21
4.21 Product Liability........................................... A-21
4.22 Books and Records........................................... A-22
4.23 No Brokers' or Other Fees................................... A-22
4.24 Sync Reports................................................ A-22
4.25 NASDAQ...................................................... A-22
ARTICLE V COVENANTS AND AGREEMENTS.................................... A-22
5.1 Conduct of Business by Entrada.............................. A-22
5.2 Conduct of Business by Sync................................. A-23
5.3 Access to Books and Records; Cooperation.................... A-25
5.4 Filings and Consents........................................ A-25
</TABLE>
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5.5 No Solicitation............................................. A-25
5.6 Proxy; Registration Statement............................... A-26
5.7 Shareholders' Meeting....................................... A-27
5.8 Listing..................................................... A-27
5.9 Covenant to Satisfy Conditions.............................. A-27
5.10 Best Efforts and Other Assurances........................... A-27
ARTICLE VI CONDITIONS TO THE SHAREHOLDER'S OBLIGATIONS................. A-27
6.1 Representations and Warranties.............................. A-27
6.2 Performance................................................. A-27
6.3 Officer's Certificate....................................... A-27
6.4 HSR Act..................................................... A-27
6.5 Shareholder Approval........................................ A-27
6.6 Registration Statement...................................... A-27
6.7 Nasdaq...................................................... A-27
6.8 Injunctions................................................. A-28
6.9 Consents.................................................... A-28
6.10 Non-Competition Agreement................................... A-28
ARTICLE VII CONDITIONS TO SYNC'S OBLIGATION............................. A-28
7.1 Representations and Warranties.............................. A-28
7.2 Performance................................................. A-28
7.3 Officer's Certificate....................................... A-28
7.4 HSR Act..................................................... A-28
7.5 Shareholder Approval........................................ A-28
7.6 Registration Statement...................................... A-28
7.7 Injunctions................................................. A-28
7.8 Consents.................................................... A-28
7.9 Non-Competition Agreement................................... A-29
ARTICLE VIII TERMINATION................................................. A-29
8.1 Termination................................................. A-29
8.2 Procedure and Effect of Termination......................... A-29
ARTICLE IX INDEMNIFICATION............................................. A-29
9.1 Indemnification by the Shareholder of Sync.................. A-29
9.2 Indemnification by Sync of the Shareholder.................. A-30
9.3 Notice and Opportunity to Defend............................ A-30
</TABLE>
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9.4 Payment..................................................... A-31
9.5 Minimum Liability........................................... A-31
ARTICLE X MISCELLANEOUS............................................... A-31
10.1 Survival of Representations, Warranties and Agreements...... A-31
10.2 Fees and Expenses........................................... A-31
10.3 Governing Law............................................... A-32
10.4 Amendment................................................... A-32
10.5 No Assignment............................................... A-32
10.6 Waiver...................................................... A-32
10.7 Notices..................................................... A-32
10.8 Complete Agreement.......................................... A-33
10.9 Counterparts................................................ A-33
10.10 Publicity................................................... A-33
10.11 Headings.................................................... A-33
10.12 Severability................................................ A-33
10.13 Third Parties............................................... A-34
10.14 CONSENT TO JURISDICTION AND SERVICE OF PROCESS.............. A-34
10.15 WAIVER OF JURY TRIAL........................................ A-34
10.16 Definitions................................................. A-35
</TABLE>
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<PAGE>
AMENDED AND RESTATED
AGREEMENT AND PLAN OF MERGER
This Amended and Restated Agreement and Plan of Merger (this "Agreement"),
dated as of August 2, 2000, is entered into by and among Sync Research, Inc., a
Delaware corporation ("Sync"), and Osicom Technologies, Inc., a New Jersey
corporation (the "Shareholder") and amends and restates in its entirety that
certain Agreement and Plan of Merger dated as of April 10, 2000 by and among
Sync, Merger Co, a Delaware corporation and wholly-owned subsidiary of Sync
("Merger Co"), the Shareholder and Osicom Technologies, Inc., a Delaware
corporation and an indirect wholly-owned subsidiary of the Shareholder
("Entrada").
R E C I T A L S:
WHEREAS, the respective Boards of Directors of Sync and the Shareholder have
approved the merger (the "Merger") of Merger Co into Entrada subject to the
terms and conditions of this Agreement, whereby each outstanding share of common
stock, $1.00 par value per share (the "Entrada Common Stock") of Entrada will be
converted into the right to receive shares of common stock, par value $.001 per
share, of Sync (the "Sync Common Stock") as provided herein;
WHEREAS, Sync and the Shareholder desire to make certain representations,
warranties, covenants and agreements in connection with the Merger and also to
prescribe various conditions to the Merger; and
WHEREAS, for Federal income tax purposes, it is intended that the Merger
shall qualify as a reorganization under the provisions of Section 368(a) of the
Internal Revenue Code of 1986, as amended.
NOW, THEREFORE, in consideration of the foregoing premises and the mutual
provisions, agreements and covenants contained herein, the parties hereto agree
as follows:
ARTICLE I
THE MERGER
1.1 THE MERGER. Upon the terms and subject to the conditions of this
Agreement, and in accordance with the Delaware General Corporation Law (the
"DGCL") Sync and the Shareholder will cause Merger Co to be merged with and into
Entrada at the Effective Time (as hereinafter defined). Following the Merger,
the separate corporate existence of Merger Co shall cease and Entrada shall
continue as the surviving corporation (the "Surviving Corporation") and shall
succeed to all rights, privileges, powers, franchises, assets, liabilities and
obligations of Entrada and Merger Co in accordance with the provisions of the
DGCL.
1.2 CLOSING. Unless this Agreement shall have been terminated and the
transactions contemplated herein shall have been abandoned pursuant to the
provisions of Article VIII, the closing of the Merger (the "Closing") shall take
place at 10:00 a.m., on a date to be specified by the parties, which date shall
be no later than the second business day after the satisfaction or waiver of the
conditions set forth in Articles VI and VII (the "Closing Date"), at the offices
of Greenbaum, Rowe, Smith, Ravin, Davis & Himmel LLP, 99 Wood Avenue South,
Woodbridge, New Jersey, or such other place, time and date as the parties may
agree. Subject to the provisions of this Agreement, a certificate of merger
shall be duly prepared, executed and acknowledged by the Surviving Corporation
and thereafter delivered for filing and recordation with the Secretary of State
of the State of Delaware in accordance with the DGCL on the Closing Date.
1.3 EFFECTIVE TIME. The Merger shall become effective at the time of the
filing of the Certificate of Merger with the Secretary of State of the State of
Delaware (or at such later time as shall be agreed
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by the Shareholder and Sync and as shall be set forth in such certificate) in
accordance with the DGCL (the date and time the Merger becomes effective being
the "Effective Time").
1.4 CERTIFICATE OF INCORPORATION; BY-LAWS. At the Effective Time and
without any further action on the part of Entrada and Merger Co, (i) the
certificate of incorporation of Entrada as in effect immediately prior to the
Effective Time shall be the certificate of incorporation of the Surviving
Corporation until thereafter changed or amended as provided therein or by
applicable law, (ii) the by-laws of Entrada shall be the by-laws of the
Surviving Corporation until thereafter changed or amended as provided therein or
by applicable law and (iii) the Merger shall, from and after the Effective Time,
have all the effects provided by applicable law, including the DGCL.
1.5 OFFICERS AND DIRECTORS. The officers and directors of Entrada at the
Effective Time shall be the officers and directors of the Surviving Corporation,
each to hold office in accordance with the certificate of incorporation and
by-laws of the Surviving Corporation.
1.6 SYNC. At the Closing, the name of Sync will be changed to Entrada
Networks, Inc., or such other name as Sync and the Shareholder may mutually
agree, and the Board of Directors of Sync will consist of Gregorio Reyes,
Charles A. Haggerty and three (3) individuals selected by the mutual agreement
of Sync and the Shareholder.
1.7 ADDITIONAL MATTERS. At the Closing, (a) any indebtedness owed by
Entrada to the Shareholder, or any other affiliates of the Shareholder, will be
canceled or contributed (in the Shareholder's sole discretion) to the capital of
Entrada; (b) the Shareholder shall agree to indemnify and hold Entrada, Sync,
Merger Co and the Surviving Corporation harmless against any liability arising
after the Effective Date from (i) the early termination by the Shareholder of
its real estate lease for property located in Aurora, Illinois (ii) the
termination of the Case Defined Benefit Plan previously maintained by Entrada
and (iii) the late filing of the Shareholder's tax returns; and (c) the
Shareholder will enter into a non-competition agreement with Sync and the
Surviving Corporation, in such form and substance as Sync and the Shareholder
may mutually agree.
1.8 LUCENT. The Shareholder agrees to be responsible for and pay any
royalties or similar payments due from Entrada to Lucent Technologies, Inc. and
its Affiliates for all periods prior to the Closing Date up to an aggregate of
$500,000. Any additional royalties or similar payments due to Lucent in excess
of $500,000 shall be paid by the Surviving Corporation.
1.9 CAPITALIZATION OF ENTRADA.
(a) As used in this Section 1.9, "Adjusted Net Current Assets" means the
current assets of Entrada less all current liabilities of Entrada, excluding
any intercompany payables, and otherwise computed in accordance with
generally accepted accounting principles, consistently applied, and the
"Share Price" means the average closing price per share of Sync's common
stock as reported by Nasdaq for the thirty (30) trading days immediately
preceding the Closing Date, provided that the Share Price shall not be less
than $3.30 and not greater than $3.811. At or prior to the Closing, the
Shareholder will contribute cash to the capital of Entrada such that the
Adjusted Net Current Assets of Entrada at the Closing are not less than
(iii) the Adjusted Net Current Assets as of May 31, 2000 ($150,000, or the
"Baseline Amount") plus (iv) the Share Price multiplied by One Million
(1,000,000). In it sole discretion, the Shareholder may contribute more cash
to the capital of Entrada in an amount not to exceed the Share Price
multiplied by Three Million (3,000,000). As used herein, the "Contribution"
means the Adjusted Net Current Assets as of the Closing Date less the
Baseline Amount.
(b) In consideration of the Contribution to be made by the Shareholder
to Entrada pursuant to paragraph 1.9(a) of this Agreement, at the Closing
Sync will issue to Entrada that number of shares of its common stock equal
to (i) the aggregate amount of the Contribution divided by (ii) the Share
Price (the "Contribution Shares"). All of the Contribution Shares shall be
included
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in, and registered under, the registration statement to be filed with the
Securities and Exchange Commission pursuant to Section 5.6 of this
Agreement. The Contribution Shares shall not be deemed outstanding for
purposes of computing the Merger Consideration pursuant to Section
2.1(c) of this Agreement.
ARTICLE II
EFFECT OF MERGER ON CAPITAL STOCK
OF CONSTITUENT CORPORATIONS
2.1 EFFECT ON CAPITAL STOCK. As of the Effective Time, by virtue of the
Merger and without any action on the part of the holder of any shares of Entrada
Common Stock or any shares of common stock, par value $.01 per share ("Merger Co
Common Stock"), of Merger Co:
(a) CAPITAL STOCK OF MERGER CO. Each share of Merger Co Common Stock
outstanding immediately prior to the Effective Time shall be converted into
and exchanged for one validly issued, fully paid and nonassessable share of
Surviving Corporation Common Stock. Each stock certificate of Merger Co
evidencing shares of Merger Co Common Stock shall thereafter evidence
ownership of shares of Surviving Corporation Common Stock.
(b) CANCELLATION OF TREASURY STOCK. Each share of Entrada Common Stock
that is owned by Entrada or any Subsidiary (as defined in Section 10.16) of
Entrada shall automatically be canceled and retired and shall cease to
exist, and no Sync Common Stock, Surviving Corporation Common Stock or other
consideration shall be delivered or deliverable in exchange therefor.
(c) CONVERSION OF ENTRADA COMMON STOCK. Other than shares to be
canceled pursuant to Section 2.1(b), the outstanding shares of Entrada
Common Stock shall be converted into the right to receive that number of
validly issued, fully paid and nonassessable shares of Sync Common Stock
that is equal to the sum of (i) the number of shares of Sync Common Stock
outstanding on the Closing Date plus (ii) the number of shares of Sync
Common Stock that is issuable upon conversion of Sync's Series A Preferred
Stock (the "Sync Preferred Stock") outstanding on the Closing Date (the
"Merger Consideration"). For the purpose of this calculation, the
Contribution Shares shall not be deemed to be outstanding on the Closing
Date. The parties intend that in connection with the Merger, the Shareholder
and its shareholders collectively will be issued that number of shares of
Sync Common Stock that is equal to the number of outstanding shares of Sync
Common Stock immediately prior to the Merger. As used in the previous
sentence, the number of outstanding shares of Sync Common Stock immediately
prior to the Merger includes the Sync Common Stock issuable upon conversion
of the outstanding Sync Preferred Stock and excludes the Contribution
Shares. In addition, Sync, promptly after the Effective Time, shall issue
nonqualified options having an exercise price of $3.19 per share to purchase
its Common Stock to Entrada employees in an amount equal to the number of
shares of Sync Common Stock issuable pursuant to the stock options and
convertible and exchangeable securities listed on Schedule 4.2(a) of the
Disclosure Schedule, which Schedule shall be updated as of the Closing Date
for purposes of this computation. Such options will not affect the Merger
Consideration calculation. The Shareholder agrees not to sell, transfer,
distribute to its shareholders or otherwise dispose of its Sync shares for a
period of thirty (30) days following the Closing Date.
2.2 EXCHANGE PROCEDURES. At the Closing, the Shareholder shall surrender
to Sync the share certificate(s) (the "Entrada Certificate") representing all of
the outstanding shares of Entrada Common Stock. The Entrada Certificate so
surrendered shall forthwith be canceled. As soon as reasonably practicable after
the Effective Time, the Shareholder and its shareholders collectively shall,
upon surrender to Sync of the Entrada Certificate, together with such other
documents as may be reasonably required by Sync, be entitled to share
certificates representing the Merger Consideration. Each such share certificate
of Sync Common Stock issued to the Shareholder and any of its shareholders who
are
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deemed to be affiliates of Sync within the meaning of the Securities Act of
1933, as amended (the "Securities Act") will bear the following legend on the
face thereof:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED. NO TRANSFER, SALE,
ASSIGNMENT, PLEDGE, HYPOTHECATION OR OTHER DISPOSITION OF THE SECURITIES
REPRESENTED BY THIS CERTIFICATE MAY BE MADE EXCEPT (A) PURSUANT TO A
REGISTRATION STATEMENT EFFECTIVE UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR (B) PURSUANT TO AN EXEMPTION FROM REGISTRATION THEREUNDER.
2.3 STOCK TRANSFER BOOKS. At the close of business, eastern standard time,
on the day the Effective Time occurs, the stock transfer books of Entrada shall
be transferred to Sync and there shall be no further registration of transfers
of shares by Entrada of Entrada Common Stock thereafter on the records of
Entrada. From and after the Effective Time, the Shareholder shall cease to have
any rights with respect to such shares of Entrada Common Stock formerly
represented by the Entrada Certificate surrendered pursuant to Section 2.2,
except as otherwise provided herein or by law.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
OF THE SHAREHOLDER
The Shareholder hereby represents and warrants to Sync as of April 10, 2000
as follows:
3.1 CORPORATE ORGANIZATION. Entrada, and each Subsidiary of Entrada, is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware. Entrada and each of its Subsidiaries has full
corporate power and authority to own their respective assets and to carry on
their respective businesses as now being conducted and are duly qualified or
licensed to do business as foreign corporations in good standing in the
jurisdictions in which the ownership of their respective property or the conduct
of their respective businesses requires such qualification or license, except
jurisdictions in which the failure to be so qualified or licensed would not,
individually or in the aggregate, have a Material Adverse Effect (as defined in
Section 10.16) on Entrada. Section 3.1 of the Disclosure Schedule attached
hereto lists by name each of Entrada and the Subsidiaries of Entrada, each
jurisdiction in which each entity is qualified or authorized to do business and
its capitalization (including the identity of each stockholder and the number of
shares held by each). Entrada has delivered to Sync complete and correct copies
of the certificate of incorporation and all amendments thereto, the by-laws as
presently in effect, and the minute books and stock transfer records of Entrada
and each of its Subsidiaries.
3.2 CAPITALIZATION.
(a) The authorized capital stock of Entrada consists of 50,000 shares of
Class A Common Stock, par value $1.00 per share (the "Entrada Common Stock")
of which 1,000 shares are issued and outstanding as of the date hereof and
9,000 shares of Class B Common Stock, none of which are outstanding as of
the date hereof. The Shareholder owns all of the shares of Entrada Common
Stock issued and outstanding as of the date hereof. No other shares of any
other class or series of capital stock of Entrada or securities exercisable
or convertible into or exchangeable for capital stock of Entrada ("Entrada
Capital Stock Equivalents") were authorized, issued or outstanding as of
January 31, 2000. Since January 31, 2000, there have been no issuances of
Entrada Common Stock or Entrada Capital Stock Equivalents. There are no
subscriptions, options, warrants, calls, rights, contracts, commitments,
understandings, restrictions or arrangements relating to the issuance, sale,
transfer or voting of any shares, whether issued or unissued, of capital
stock of Entrada or Entrada Capital Stock Equivalents, including any rights
of issuance, conversion or
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exchange under any outstanding securities or other instruments, other than
restrictions imposed by Federal and state securities laws. All of the shares
of Entrada Common Stock are duly authorized, validly issued and outstanding
and fully paid, nonassessable and free and clear of all pledges, mortgages,
claims, options, rights of first refusal, liens, charges, encumbrances,
security interests and limitations of voting rights of any kind or nature
whatsoever ("Encumbrances"). Neither Entrada nor any of its Subsidiaries has
any outstanding debt securities or other indebtedness or guarantees, except
as specifically disclosed in the Entrada Financial Statements (as defined in
Section 3.4).
(b) Section 3.2(b) of the Disclosure Schedule contains a complete and
correct list of all direct or indirect Subsidiaries of Entrada and the
amount of capital stock or other equity interests owned by Entrada and its
Subsidiaries in such Subsidiaries. All the outstanding shares of capital
stock of each of the Subsidiaries of Entrada have been duly authorized,
validly issued and are fully paid and non-assessable and, except as set
forth in Section 3.2(b) of the Disclosure Schedule, are owned (of record and
beneficially) by Entrada designed in Section 3.2(b) of the Disclosure
Schedule, free and clear of all Encumbrances. Except for the Subsidiaries
set forth in Section 3.2(b) of the Disclosure Schedule, neither Entrada nor
any of its Subsidiaries owns or has any option or right to acquire, directly
or indirectly, any capital stock or other equity securities of, or has any
direct or indirect equity or ownership interest or debt investment in, any
corporation, association, partnership, joint venture or other business.
3.3 AUTHORIZATION, ETC. Each of the Shareholder and Entrada has full power
and authority to execute and deliver this Agreement and to carry out the
transactions contemplated hereby. The execution and delivery of this Agreement
and the consummation of the transactions contemplated hereby have been duly
authorized by all necessary corporate action on the part of the Shareholder and
of Entrada and no other corporate proceedings on the part of Entrada, the
Shareholder or their respective stockholders are necessary to authorize this
Agreement or to consummate the transactions so contemplated (other than, with
respect to the Merger, the filing of the Certificate of Merger as required by
the DGCL). This Agreement has been duly and validly executed by Entrada and the
Shareholder and, assuming this Agreement constitutes the legal, valid and
binding agreement of the other parties hereto, constitutes a legal, valid and
binding agreement of Entrada and the Shareholder, enforceable against each of
them in accordance with its terms, except that (i) the enforcement hereof may be
limited by bankruptcy, insolvency, reorganization, moratorium or other similar
laws now or hereafter in effect relating to creditors' rights generally and (ii)
the remedy of specific performance and injunctive and other forms of equitable
relief may be subject to equitable defenses and to the discretion of the court
before which any proceeding therefor may be brought.
3.4 FINANCIAL STATEMENTS. Entrada has previously delivered to Sync
(i) the audited balance sheet of Entrada and its Subsidiaries as of January 31,
2000 (the "Entrada Balance Sheet") and the related audited statements of income,
stockholders' equity and cash flows for the fiscal year then ended, and the
notes thereto, and the related unaudited statements of income, stockholders'
equity and cash flows for the year then ended, and the notes thereto
(collectively the "Entrada Financial Statements"). The Entrada Financial
Statements present fairly the assets, liabilities, financial position, results
of operations and cash flows of Entrada and its Subsidiaries as of the dates and
for the periods indicated, and have been prepared in accordance with United
States generally accepted accounting principles ("GAAP") consistently applied by
Entrada.
3.5 NO UNDISCLOSED LIABILITIES. Except as disclosed in Section 3.5 of the
Disclosure Schedule, neither Entrada nor any of its Subsidiaries has any
liabilities or obligations of any nature (whether known or unknown and whether
absolute, accrued, contingent or otherwise) except for liabilities or
obligations reflected on or reserved against the Entrada Balance Sheet or the
Entrada Interim Balance Sheet and current liabilities incurred in the ordinary
course of business and consistent with past practice since the respective dates
thereof.
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3.6 NO APPROVALS OR CONFLICTS. Except as set forth in Section 3.6 of the
Disclosure Schedule, the execution, delivery and performance by Entrada and the
Shareholder of this Agreement and the consummation by Entrada and the
Shareholder of the transactions contemplated hereby will not (i) violate,
conflict with or result in a breach by Entrada of any provision of the
certificate of incorporation or by-laws of Entrada or any of its Subsidiaries,
(ii) violate, conflict with or result in a breach of any provision of, or
constitute a default by Entrada or any of its Subsidiaries (or an event which,
with notice or lapse of time or both, would constitute a default) or give rise
to any right of termination, cancellation or acceleration under, or result in
the creation of any Encumbrance upon any of the properties of Entrada or any of
its Subsidiaries under, any Entrada Contract (as defined in Section 3.15),
(iii) violate or result in a breach of any order, injunction, judgment, ruling,
law or regulation of any court or governmental authority applicable to Entrada,
any of its Subsidiaries, or any of their respective properties or except for
those required under or in relation to the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended, and the rules and regulations promulgated
thereunder (the "HSR Act"), require any order, consent, approval or
authorization of, or notice to, or declaration, filing, application,
qualification or registration with, any governmental or regulatory authority,
excluding from the foregoing clauses (ii) and (iii) above, such violations,
conflicts and breaches which, individually or in the aggregate, would not have a
Material Adverse Effect on Entrada or prevent or delay the consummation of the
transactions contemplated hereby.
3.7 COMPLIANCE WITH LAW; GOVERNMENTAL AUTHORIZATIONS. Neither Entrada nor
any of its Subsidiaries is in violation of any order, injunction, judgment,
ruling, law or regulation of any court or governmental authority applicable to
the property or business of Entrada or any such Subsidiary. Entrada and each of
its Subsidiaries have all material licenses, permits and other governmental
authorizations reasonably necessary to conduct their respective businesses as
currently conducted and such licenses, permits and authorizations are valid and
in full force and effect.
3.8 LITIGATION. Except as set forth in Section 3.8 of the Disclosure
Schedule, there are no claims, suits, actions, proceedings or investigations
(collectively, "Claims") pending or, to the best knowledge of Entrada or the
Shareholder, threatened against Entrada, any of its Subsidiaries, or the
transactions contemplated by this Agreement before any arbitrator, court or
governmental or regulatory authority or body, which, if decided unfavorably to
Entrada or such Subsidiary, would have a Material Adverse Effect on Entrada.
Except as set forth in Section 3.8 of the Disclosure Schedule, neither Entrada
nor any of its Subsidiaries nor any of their respective assets is subject to any
decree, order or judgment which would have a Material Adverse Effect on Entrada.
3.9 ASSETS.
(a) Except as set forth in Section 3.6(a) of the Disclosure Schedule, on
January 31, 2000, Entrada and each of its Subsidiaries had and, except with
respect to assets disposed of or acquired in the ordinary course of business
and consistent with past practice since such date, Entrada and each of its
Subsidiaries now has, good and valid title to, or holds by valid and
existing lease or license, all the assets reflected as assets of Entrada and
its Subsidiaries on the Entrada Balance Sheet or which would have been
reflected on the Entrada Balance Sheet if acquired prior to such date, free
and clear of all Encumbrances except for: Encumbrances which secure
indebtedness or obligations which are properly reflected on the Entrada
Balance Sheet and Permitted Liens (as defined in Section 10.16). Except as
set forth in Section 3.9(a) of the Disclosure Schedule, Entrada and its
Subsidiaries own, or have valid leasehold interests in, all material assets,
tangible and intangible, necessary for the operation or conduct of Entrada's
and such Subsidiary's business as conducted prior to and through the Closing
Date (the "Entrada Assets"), and all such assets are in reasonably good
maintenance, operating condition and repair, normal wear and tear excepted,
other than machinery and equipment under repair or out of service in the
ordinary course of Entrada's or such Subsidiary's business. The Entrada
Assets include, without limitation, all right, title and interest to the
hubs, switches, LAN adapters, FDDI, VME boards, stand alone print
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servers, Nethopper and all other network access business assets, and all
associated know-how and proprietary information related thereto, that
(i) are necessary for Sync to operate Entrada's business in the manner in
which Entrada has operated the same, and (ii) were owned by the Shareholder
or any of its Subsidiaries as of January 31, 2000.
(b) Except as set forth in Section 3.9 of the Disclosure Schedule, no
licenses or other consents from, or payments to, any other person, entity or
governmental authority are or will be necessary for Sync to operate
Entrada's business and use the Entrada Assets in the manner in which Entrada
has operated the same, and no such person, entity or authority has made any
claim to the contrary. No person or entity other than Entrada and its
Subsidiaries has any right or interest in the Entrada Assets, including the
right to grant interests in the Entrada Assets to third parties, except as
set forth in Section 3.9(b) of the Disclosure Schedule, and there exists no
restriction on the use or transfer of the Entrada Assets.
(c) Except as provided in Section 3.9(c) of the Disclosure Schedule, no
restrictions will exist on Sync's right to sell, resell, license or
sublicense any of the Entrada Assets or engage in Entrada's business, nor
will any such restrictions be imposed on Sync as a consequence of the
transactions contemplated by this Agreement or by any agreement referenced
in this Agreement.
3.10 ABSENCE OF CERTAIN CHANGES. Except as disclosed in Section 3.10 of
the Disclosure Schedule, since January 31, 2000, the business of Entrada and
each of its Subsidiaries has been conducted only in the ordinary course and
consistent with past practice in all material respects, there has not been any
event or development prior to the date hereof which, if it had occurred or
existed after the date hereof, would be a violation of Section 5.1(c), and there
has not been any change, event or development which, individually or in the
aggregate, would reasonably be expected to have a Material Adverse Effect on
Entrada.
3.11 TAXES. Except as disclosed on the Disclosure Schedule, Entrada and
each of its Subsidiaries has filed or caused to be filed all Tax Returns
(including estimated Tax Returns) required to be filed by Entrada and each such
Subsidiary. Except as disclosed on the Disclosure Schedule, All Tax Returns are
complete and accurate in all material respects and all Taxes required to be
shown on such Tax Returns or otherwise due or payable and all additional
assessments of any such Taxes received prior to the date hereof have been paid
in full on the due date for payment thereof. Neither Entrada nor any of its
Subsidiaries is required to file any income or franchise tax returns in any
jurisdiction other than the United States and the States of Arizona, California,
Colorado, Connecticut, Denver, Delaware, Florida, Illinois, Kansas, Maryland,
Massachusetts, Michigan, Minnesota, New Jersey, New York, North Carolina, Ohio,
Pennsylvania, South Carolina, Texas, Virginia and Washington and the City of
Denver and the District of Columbia. The amounts set up as accruals for Taxes on
the Entrada Financial Statements are sufficient for the payment of all Taxes of
Entrada and each of its Subsidiaries, whether or not disputed, for all periods
ended on and prior to the respective dates thereof. In addition, the amounts set
up as accruals for Taxes on the financial books of Entrada and each of its
Subsidiaries on the date hereof are and will be sufficient for the payment of
all Taxes of Entrada and each such Subsidiary, whether or not disputed, for all
periods ended on and prior to the Closing Date. Except as disclosed in Section
3.11 of the Disclosure Schedule, the United States Federal, state and local
income tax returns of Entrada and each of its Subsidiaries have been audited by
the Internal Revenue Service or other Tax Authority or are closed and there are
no proceedings or claims relating thereto or any facts that could give rise to
the reopening thereof. Except as disclosed on the Disclosure Schedule, no
deficiency in the payment of Taxes by Entrada or any of its Subsidiaries for any
period has been asserted or, to the best knowledge of Entrada or the
Shareholder, threatened against Entrada or any of its Subsidiaries by any Tax
Authority and remains unsettled as of the date of this Agreement. Except as
disclosed on the Disclosure Schedule, all Taxes required to be withheld,
collected or deposited by Entrada or any of its Subsidiaries have been timely
withheld, collected or deposited and, to the extent required, have been paid to
the relevant Tax Authorities. Except as disclosed on the Disclosure
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Schedule, neither Entrada nor any of its Subsidiaries owe any amount pursuant to
any written or unwritten Tax sharing agreement or arrangement, or will have any
liability after the date hereof in respect of any written or unwritten Tax
sharing agreement or arrangement executed or agreed prior to the date hereof.
Except as disclosed on the Disclosure Schedule, there are no Tax liens on any of
the assets of Entrada or any of its Subsidiaries, other than liens for current
Taxes which are not yet due or payable. Except as set forth in Section 3.11 of
the Disclosure Schedule, neither Entrada nor any of its Subsidiaries has made
any agreement, waiver or other arrangement providing for an extension of time
with respect to the assessment or collection of any Tax against Entrada or any
such Subsidiary. Neither Entrada nor any of its Subsidiaries has been, or will
be, subject to Tax under Section 1374 or Section 1375 of the Code for any
taxable year ending on or prior to the Closing Date. Neither Entrada nor any of
its Subsidiaries has filed a consent with the Internal Revenue Service pursuant
to Section 341(f) of the Code or with any other Tax Authority to any similar
effect or made an election under Section 338 of the Code other than as provided
for in the terms of this Agreement.
For purposes of this Agreement, the term "Tax" or "Taxes" shall mean all
taxes, charges, fees, levies, penalties or other assessments imposed by any
United States Federal, state, local or foreign Tax Authority, including, but not
limited to, income, service, leasing, occupation, excise, property, sales and
use, transfer, franchise, payroll, withholding, social security or other taxes,
including any interest, penalties or additions attributable thereto.
For purposes of this Agreement, the term "Tax Return" shall mean any return,
report, information return or other document (including any related or
supporting information) filed or required to be filed with any Tax Authority
with respect to Taxes.
For purposes of this Agreement, the term "Tax Authority" shall mean the
Internal Revenue Service and any similar state, local or foreign authority
having jurisdiction over Taxes.
3.12 EMPLOYEE BENEFITS.
(a) Section 3.12 of the Disclosure Schedule contains a true and complete
list of each "employee benefit plan" (within the meaning of section 3(3) of
the Employee Retirement Income Security Act of 1974, as amended ("ERISA"),
including, without limitation, multi-employer plans within the meaning of
ERISA section 3(37)), stock purchase, stock option, stock bonus, severance,
employment, change-in-control, fringe benefit, collective bargaining, bonus,
incentive, deferred compensation and all other employee benefit plans,
agreements, programs, policies or other arrangements, whether or not subject
to ERISA (including any funding mechanism therefor now in effect or required
in the future as a result of the transaction contemplated by this Agreement
or otherwise), whether formal or informal, oral or written, legally binding
or not, under which any employee or former employee of Entrada or any of its
Subsidiaries has any present or future right to benefits and under which
Entrada or any of its Subsidiaries may have any present or future liability.
All such plans, agreements, programs, policies and arrangements shall be
collectively referred to as the "Entrada Plans."
(b) With respect to each Entrada Plan, Entrada has delivered to Sync a
current, accurate and complete copy (or, to the extent no such copy exists,
an accurate written description) thereof and, to the extent applicable: Any
related trust agreement or other funding instrument; the most recent
determination letter, if the Entrada Plan is intended to qualify under Code
Section 401(a); any summary plan description and other written
communications (or a written description of any oral communications) by
Entrada or any of its Subsidiaries to their respective employees concerning
the extent of the benefits provided under an Entrada Plan; and, for the
three most recent years, (1) the Form 5500 and attached schedules,
(2) audited financial statements, (3) actuarial valuation reports and
(4) attorney's responses to an auditors' requests for information.
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(c) No Entrada Plan is subject to Title IV of ERISA, and neither Entrada
nor any member of its Controlled Group has ever contributed to, sponsored,
or been obligated to contribute to any plan subject to Title IV of ERISA.
(d) (i) Each Entrada Plan has been established and administered in
accordance with its terms and with the applicable provisions of ERISA, the
Code and other applicable laws, rules and regulations; (ii) no event has
occurred and no condition exists that would subject Entrada or its
Subsidiaries either directly or by reason of its affiliation with any member
of its "Controlled Group" (defined as any organization which is a member of
a controlled group of organizations within the meaning of Code Sections
414(b), (c), (m) or (o)), to any Tax, fine, lien or penalty imposed by
ERISA, the Code or other applicable laws, rules and regulations; (iii) each
Entrada Plan which is intended to be qualified within the meaning of Code
Section 401(a) is so qualified and has received a favorable determination
letter pursuant to the Tax Reform Act of 1986 and subsequent legislation as
to its qualification, and nothing has occurred, whether by action or failure
to act, that could reasonably be expected to cause the loss of such
qualification; (iv) for each Entrada Plan with respect to which a Form 5500
has been filed, no material change has occurred with respect to the matters
covered by the most recent Form 5500 since the date thereof; (v) no Entrada
Plan provides retiree welfare benefits and neither Entrada nor any of its
Subsidiaries have any obligation to provide any retiree welfare benefits
other than as required by Section 4980B of the Code; and (vi) neither
Entrada nor any member of its Controlled Group has engaged in, or is a
successor or parent corporation to an entity that has engaged in, a
transaction described in Sections 4069 or 4212(c) of ERISA.
(e) With respect to any Entrada Plan, (i) no actions, suits or claims
(other than routine claims for benefits in the ordinary course) are pending
or, to the best knowledge of Entrada or the Shareholder, threatened, and
(ii) no facts or circumstances exist that could reasonably be expected to
give rise to any such actions, suits or claims.
(f) Except as set forth in Section 3.12 of the Disclosure Schedule, no
Entrada Plan exists that could result in the payment to any present or
former employee of Entrada or any of its Subsidiaries of any money or other
property or accelerate or provide any other rights or benefits to any
present or former employee or other service provider of Entrada or any of
its Subsidiaries as a result of the transactions contemplated by this
Agreement. There is no contract, plan or arrangement (written or otherwise)
covering any employee or other service provider or former employee or
service provider of Entrada or any of its Subsidiaries that, individually or
collectively, could give rise to the payment of any amount that would not be
deductible pursuant to the terms of the Code.
3.13 LABOR RELATIONS. Since January 1, 1998, neither Entrada nor any of
its Subsidiaries has been or is a party to any collective bargaining or other
labor agreement. Except as set forth in Section 3.13 of the Disclosure Schedule,
there is no unfair labor practice charge or complaint pending or, to the best
knowledge of Entrada or the Shareholder, threatened against or otherwise
affecting Entrada or any of its Subsidiaries which, if adversely determined,
would reasonably be likely to result in a liability having a Material Adverse
Effect on Entrada; there is no labor strike, slowdown, work stoppage, or lockout
in effect, or, to the best knowledge of Entrada and the Shareholder, threatened
against or otherwise affecting Entrada or any of its Subsidiaries, and neither
Entrada nor any of its Subsidiaries has experienced any such labor controversy
within the past three years; neither Entrada nor any of its Subsidiaries is a
party to, or otherwise bound by, any consent decree with, or citation by, any
governmental authority relating to employees or employment practices; and
Entrada and each of its Subsidiaries is in compliance with their obligations
pursuant to the Worker Adjustment and Retraining Notification Act of 1988 ("WARN
Act"), and all other notification and bargaining obligations arising under any
collective bargaining agreement, statute or otherwise. To the best knowledge of
Entrada and
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the Shareholder, there is no effort to organize employees of Entrada or any of
its Subsidiaries which is pending or threatened.
3.14 PATENTS, TRADEMARKS, TRADE NAMES, ETC. Section 3.14 of the Disclosure
Schedule contains a true and complete list of all patents, trademarks, trade
names, copyrights and pending applications therefor (collectively, the "Entrada
Intellectual Property") used or owned by Entrada and each of its Subsidiaries
and a list of all licenses and other agreements (collectively, the "Entrada
License Agreements") relating thereto. Except as set forth in Section 3.14 of
the Disclosure Schedule, (i) the consummation of the transactions contemplated
by this Agreement will not materially impair any right to use the Entrada
Intellectual Property or the Entrada License Agreements, (ii) all Entrada
Intellectual Property and Entrada License Agreements are valid, in good standing
and free and clear of liens or other security interests, (iii) neither Entrada
nor any of its Subsidiaries has received written or, to the best knowledge of
Entrada or the Shareholder, oral, notice of any claims by any person to the use
of any such Entrada Intellectual Property, or challenging or questioning the
validity or effectiveness of any such Entrada License Agreement, and (iv) to the
knowledge of Entrada and the Shareholder, no other person is interfering with,
infringing upon, misappropriating or otherwise coming into conflict with any of
the Entrada Intellectual Property.
3.15 CONTRACTS. The contracts and agreements listed in Section 3.15 of the
Disclosure Schedule constitute each contract, instrument, lease, deed or
agreement which is material to the business or operations of Entrada and each of
its Subsidiaries (the "Entrada Contracts"). Complete copies (or, if oral,
written summaries) of each Entrada Contract have been made available to Sync,
including, without limitation, all of the following Entrada Contracts: (i) any
indenture, note, mortgage, installment obligation, or other instrument for or
relating to any borrowing of money; (ii) any guaranty of any obligation;
(iii) any agreement, contract, commitment or arrangement containing any covenant
limiting the ability of Entrada or any of its Subsidiaries to engage in any line
of business or to compete with any business or person; (iv) any agreement,
contract, commitment or arrangement relating to capital expenditures with
respect to Entrada or any of its Subsidiaries and involving future payments
which exceed $25,000 in any 12-month period; (v) any agreement, contract,
commitment or arrangement relating to the acquisition of assets or any capital
stock of any business enterprise which has not been consummated; (vi) any real
property lease; (vii) any contract, commitment, agreement or arrangement which
requires payments in excess of $25,000 in any 12-month period, to the extent
such contract, commitment, agreement or arrangement is not terminable within 30
days without payment of premium or penalty; (viii) any license agreement;
(ix) any joint venture, partnership or other agreement for the joint performance
of work or services; (x) each power of attorney that is effective and
outstanding; (xi) any agreement entered into other than in the ordinary course
of business containing or providing for an express undertaking by Entrada or any
of its Subsidiaries to be responsible for consequential damages and (xii) any
contract, commitment, agreement or arrangement with any director, stockholder or
Affiliate (as defined in Section 10.16) of Entrada or any of its Subsidiaries.
Each Entrada Contract is in full force and effect, and is a legal, valid and
binding obligation of Entrada or such Subsidiary and each of the other parties
thereto, enforceable in accordance with its terms, except that (x) enforcement
may be limited by bankruptcy, insolvency, reorganization, moratorium or other
similar laws now or hereafter in effect relating to creditors' rights generally
and (y) the remedy of specific performance and injunctive and other forms of
equitable relief may be subject to equitable defenses and to the discretion of
the court before which any proceeding therefor may be brought. No condition
exists or event has occurred which (whether with or without notice or lapse of
time or both, or the happening or occurrence of any other event) would
constitute a default by Entrada, any of its Subsidiaries, or, to the best
knowledge of Entrada and the Shareholder, any other party thereto under, or
result in a right in termination of, any Entrada Contract, by any other party
thereto. To the best knowledge of Entrada and the Shareholder, no party to any
Entrada Contract intends (x) to terminate such Entrada Contract or materially
amend the terms thereof, (y) to refuse to renew such Entrada Contract upon
expiration thereof or (z) to
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renew such Entrada Contract upon expiration thereof on terms and conditions
which are materially more onerous to Entrada or such Subsidiary than those
pertaining to such existing Entrada Contract.
3.16 ENVIRONMENTAL MATTERS. Except as to matters which would not be
expected to result, individually or in the aggregate, in a Material Adverse
Effect on Entrada, or as set forth in Section 3.16 of the Disclosure Schedule,
(i) neither Entrada nor any of its Subsidiaries has received any notice alleging
the material violation of, or any material actual or potential liability
relating to, any applicable foreign, federal, state or local statutes, laws,
regulations, rules, decrees, orders, judgments, ordinances, or common law
related to the protection of human health or the environment, including, without
limitation, the Comprehensive Environmental Response, Compensation and Liability
Act, the Emergency Planning and Community Right-To-Know Act, the Solid Waste
Disposal Act, the Resource Conservation and Recovery Act, the Clean Air Act, the
Water Pollution Control Act, the Toxic Substances Control Act, the Hazardous
Materials Transportation Act, and the Occupational Safety and Health Act, each
as amended and supplemented, and any regulations promulgated pursuant to such
laws, and any similar state or local statutes or regulations but excluding
workers compensation or similar laws ("Environmental Laws"), which violation has
not been resolved and, to the best knowledge of Entrada and the Shareholder, no
such notice is threatened or otherwise expected, (ii) to the best knowledge of
Entrada and the Shareholder, Entrada and each of its Subsidiaries is and has
been in material compliance with all applicable Environmental Laws and there is
no condition that could prevent or materially interfere with such compliance in
the future, (iii) Entrada and each of its Subsidiaries has obtained and is and
has been in material compliance with all required governmental environmental
permits, registrations and authorizations with respect to the business of
Entrada and each of its Subsidiaries as currently conducted, (iv) to the best
knowledge of Entrada and the Shareholder, no hazardous waste, substance,
material, or chemical, including, without limitation, petroleum and petroleum
products, polychlorinated biphenyls, asbestos and any other material regulated
under, or that can result in liability under, applicable Environmental Laws
("Hazardous Material"), has been transported, stored, treated, arranged to be
disposed of or disposed of by Entrada or any of its Subsidiaries on or from the
real estate owned, operated or otherwise used by Entrada or any of its
Subsidiaries or at any other location, except in compliance with, or as
otherwise would not result in material liability under all applicable
Environmental Laws, (v) except for successor liability as an owner of real
property, neither Entrada nor any of its Subsidiaries has assumed, contractually
or by operation of law, any liabilities, potential liabilities or obligations of
any other person or entity under any applicable Environmental Laws,
(vi) neither Entrada nor any of its Subsidiaries has entered into, agreed to, or
is subject to any judgment, decree, order or other similar requirement of any
governmental authority under any Environmental Laws, (vii) to the best knowledge
of Entrada and the Shareholder, there are no (w) underground or aboveground
storage tanks, (x) surface impoundments, (y) landfills or (z) sewer or septic
systems currently or formerly present at or about any of the properties or
facilities currently or formerly owned, operated or otherwise used by Entrada or
any of its Subsidiaries that could result in material liability to Entrada or
any such Subsidiary under any applicable Environmental Laws, and (viii) to the
best knowledge of Entrada and the Shareholder, there are no actions, activities,
events, conditions or circumstances occurring or existing, including without
limitation the release, threatened release, emission, discharge, generation,
treatment, storage or disposal of Hazardous Materials, that can reasonably be
expected to result in any material liability or obligation of Entrada or any of
its Subsidiaries under or relating to any Environmental Laws.
3.17 INSURANCE. Section 3.17 of the Disclosure Schedule lists all
insurance policies of Entrada and each of its Subsidiaries covering the assets,
employees and operations of Entrada and each of its Subsidiaries as of the date
hereof and any pending claims under such policies. All such policies are in full
force and effect, all premiums due thereon have been paid by Entrada or such
Subsidiary and Entrada and each of its Subsidiaries has complied in all material
respects with the provisions of such policies and has not received any notice
from any of its insurance brokers or carriers that any insurance policy is no
longer in full force or effect or that such broker or carrier will not be
willing or able to
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renew their existing coverage and perform its obligations thereunder. All such
policies shall continue in full force and effect following the consummation of
the transactions contemplated by this Agreement.
3.18 MATERIAL CUSTOMERS AND SUPPLIERS. Section 3.18 of the Disclosure
Schedule sets forth the names of the ten suppliers of Entrada and its
Subsidiaries whom Entrada and its Subsidiaries paid the greatest sum of money in
respect of products, services and materials sold to Entrada and its Subsidiaries
and the ten customers of Entrada and its Subsidiaries from whom Entrada and its
Subsidiaries received the greatest sum of money in respect of products or
services provided by Entrada and its Subsidiaries between February 1, 1999 and
January 31, 2000.
3.19 REAL PROPERTY.
(a) The real property listed in Section 3.19(a) of the Disclosure
Schedule constitutes all of the real property that any of Entrada and its
Subsidiaries owns as of the date hereof (the "Entrada Owned Real Property").
Except as set forth in Section 3.19(a) of the Disclosure Schedule, with
respect to each such parcel of Entrada Owned Real Property the identified
owner has good and marketable fee simple title to the parcel of real
property, free and clear of any Encumbrance (other than Permitted Liens).
(b) The leases listed in Section 3.15 of the Disclosure Schedule
constitute all the real property leases which are used in the conduct of the
business of Entrada and its Subsidiaries as it is presently being conducted
and/or to which Entrada or its Subsidiaries is a party (the "Entrada Leases"
and, such property, "Entrada Leased Property"; the Entrada Leased Property,
together with the Entrada Owned Real Property, the "Entrada Real Property").
The Entrada Real Property is all of the real property which is used for the
conduct of the business of Entrada and its Subsidiaries as is presently
conducted.
(c) Since January 31, 2000, neither Entrada nor any of its Subsidiaries
has sold, assigned, transferred or otherwise disposed of, or granted any
security interest in or lien on, any Entrada Owned Real Property or any
Entrada Lease. With respect to each Entrada Lease, all accrued and payable
rents required by each Entrada Lease to be paid by Entrada or any of its
Subsidiaries have been paid or adequate provision for such payment has been
made, no written notice of default or termination has been given or received
by Entrada or any of its Subsidiaries, and no material event of default has
occurred, no condition exists and no event has occurred that, with the
giving of notice or the lapse of time, would become a material default or
permit early termination, under any Entrada Lease, and (iii) Entrada has,
and immediately after the Closing, will have, good, valid and enforceable
title to the leasehold estate in the Entrada Leased Property, free and clear
of any Encumbrance (other than Permitted Liens). Except as set forth in
Section 3.19(c) of the Disclosure Schedule, no third party consent or
approval under any Entrada Lease is required for the consummation of the
transactions contemplated herein.
(d) Entrada has obtained all easements and rights of way required from
all governmental jurisdictions or from private parties for the normal use
and operation of the business on the Entrada Owned Real Property as
heretofore conducted.
(e) There is no pending or, to Entrada's knowledge, threatened
condemnation, expropriation, eminent domain or similar proceeding affecting
any of the Entrada Real Property and Entrada has not received any written
notice of any of the same.
(f) Each Entrada Owned Real Property and, to Entrada's knowledge, each
Entrada Leased Property and all buildings, structures, fixtures and
improvements on each Entrada Owned Real Property and, to Entrada's
knowledge, each Entrada Leased Property, and all use of any thereof by
Entrada or its subsidiaries, conform with all applicable building, zoning,
subdivision, land use, fire and other laws pertaining to or affecting real
property, except where the failure to so conform would not have a Material
Adverse Effect on Entrada. Each occupied Entrada Owned Real
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Property and, to Entrada's knowledge, each occupied Entrada Leased Property
is occupied under a valid and existing certificate of occupancy for such
Entrada Real Property. Entrada has taken all corrective action indicated in
all written notices or orders to Entrada to correct violations of laws
issued by any governmental authority having jurisdiction against or
affecting the Entrada Real Property. The Entrada Real Property is not in
violation of any restrictive covenant, condition, restriction or limitation
which would have a Material Adverse Effect on Entrada or a material adverse
effect on the use thereof as currently utilized.
(g) No Entrada Owned Real Property is subject to any contract or other
restriction of any nature whatsoever (recorded or unrecorded) preventing or
limiting the right of Entrada to convey or use it as currently operated.
(h) All Entrada Real Property and the improvements thereon are supplied
with the utilities necessary for the operation of such facilities as
currently operated.
(i) Entrada has not received written notice of any special assessment
relating to any Entrada Real Property or any portion thereof, and, to
Entrada's knowledge, there are no pending or threatened special assessments.
(j) Entrada has furnished Sync with all non-privileged environmental,
engineering or other studies or reports prepared for Entrada or its
subsidiaries since January 1, 1995 which primarily deal with the ownership,
operation, maintenance or management of the Entrada Real Property.
3.20 INVESTMENT COMPANY ACT STATUS. Neither Entrada nor any of its
Subsidiaries is an "investment company," or a company "controlled" by an
"investment company," within the meaning of the Investment Company Act of 1940.
3.21 PRODUCT LIABILITY. Except as set forth in Section 3.21 of the
Disclosure Schedule, neither Entrada nor any of its Subsidiaries has received
written notice of any claim or threatened claim against Entrada or any such
Subsidiary for product liability, nor, to the best knowledge of Entrada and the
Shareholder, has Entrada or any of its Subsidiaries received oral notice of any
claim or threatened claim against Entrada or any of its Subsidiaries for product
liability.
3.22 BOOKS AND RECORDS. The financial books and records pertaining to the
business of Entrada and its Subsidiaries are complete and correct in all
material respects, have been maintained in accordance with good business
practice, and reflect the basis for the financial condition and results of
operations of Entrada set forth in the Entrada Financial Statements referred to
in Section 3.4 hereto.
3.23 NO BROKERS' OR OTHER FEES. No broker, finder or investment banker is
entitled to any fee or commission in connection with the transactions
contemplated hereby based upon arrangements made by or on behalf of the
Shareholder or Entrada or any of its Subsidiaries.
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ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF SYNC
Sync hereby represents and warrants to Entrada as follows as of April 10,
2000:
4.1 CORPORATE ORGANIZATION. Sync, and each Subsidiary of Sync, is a
corporation duly organized, validly existing and in good standing under the laws
of the jurisdiction of its incorporation. Sync and each of its Subsidiaries has
full corporate power and authority to own their respective assets and to carry
on their respective businesses as now being conducted and are duly qualified or
licensed to do business as foreign corporations in good standing in the
jurisdictions in which the ownership of their respective property or the conduct
of their respective businesses requires such qualification or license, except
jurisdictions in which the failure to be so qualified or licensed would not,
individually or in the aggregate, have a Material Adverse Effect on Sync. Sync
has delivered to Entrada complete and correct copies of the certificate of
incorporation and all amendments thereto, the by-laws as presently in effect,
and the minute books and stock transfer records of Sync and each of its
Subsidiaries.
4.2 CAPITALIZATION.
(a) The authorized capital stock of Sync consists of 50,000,000 shares
of Sync Common Stock, of which 3,531,007 shares of Sync Common Stock (the
"Sync Shares") were outstanding as of March 31, 2000, and 754,280 shares of
Sync Common Stock were reserved for issuance upon exercise of options
outstanding as of March 31, 2000, and 2,000,000 shares of Sync Preferred
Stock, par value $.001 per share, none of which shares were outstanding as
of March 31, 2000. No other shares of any other class or series of capital
stock of Sync or securities exercisable or convertible into or exchangeable
for capital stock of Sync ("Sync Capital Stock Equivalents") were
authorized, issued or outstanding as of March 31, 2000. Since March 31,
2000, there have been no issuances of Sync Common Stock or Sync Capital
Stock Equivalents other than (i) issuances of shares of Sync Common Stock
upon exercise of options outstanding on March 31, 2000, (ii) issuance of
shares of Sync Common Stock under Sync's Employee Stock Purchase Plan and
(iii) and 700,000 shares of Series A Preferred Stock were outstanding as of
the date of this Agreement. Except as set forth in Section 4.2(a) of the
Disclosure Schedule, there are no subscriptions, options, warrants, calls,
rights, contracts, commitments, understandings, restrictions or arrangements
relating to the issuance, sale, transfer or voting of any shares, whether
issued or unissued, of capital stock of Sync or Sync Capital Stock
Equivalents, including any rights of issuance, conversion or exchange under
any outstanding securities or other instruments, other than restrictions
imposed by Federal and state securities laws. All of the Sync Shares are,
and any shares of Sync Common Stock to be issued upon exercise of
outstanding options will be, duly authorized, validly issued and outstanding
and fully paid, nonassessable and free and clear of all Encumbrances.
Neither Sync nor any of its Subsidiaries has any outstanding debt securities
or other indebtedness or guarantees, except as specifically disclosed in the
Sync Financial Statements (as defined in Section 4.4).
(b) Section 4.2(b) of the Disclosure Schedule contains a complete and
correct list of all direct or indirect Subsidiaries of Sync and the amount
of capital stock or other equity interests owned by Sync and its
Subsidiaries in such Subsidiaries. All the outstanding shares of capital
stock of each of the Subsidiaries of Sync have been duly authorized, validly
issued and are fully paid and non-assessable and, except as set forth in
Section 4.2(b) of the Disclosure Schedule, are owned (of record and
beneficially) by Sync or by another Subsidiary of Sync, free and clear of
all Encumbrances. Except for the Subsidiaries set forth in Section
4.2(b) of the Disclosure Schedule, neither Sync nor any of its Subsidiaries
owns or has any option or right to acquire, directly or indirectly, any
capital stock or other equity securities of, or has any direct or indirect
equity or ownership interest or debt investment in, any corporation,
association, partnership, joint venture or other business.
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4.3 AUTHORIZATION, ETC. Each of Sync and Merger Co has full power and
authority to execute and deliver this Agreement and to carry out the
transactions contemplated hereby. The execution and delivery of this Agreement
and the consummation of the transactions contemplated hereby have been duly
authorized by all necessary corporate action on the part of Sync and Merger Co
(other than the approval of this Agreement by the holders of a majority of the
outstanding shares of Sync Common Stock) and no other corporate proceedings on
the part of Sync, Merger Co or their respective stockholders are necessary to
authorize this Agreement or to consummate the transactions so contemplated
(other than, with respect to the Merger, the filing of the Certificate of Merger
as required by the DGCL). This Agreement has been duly and validly executed by
each of Sync and Merger Co and, assuming this Agreement constitutes the legal,
valid and binding agreement of the other parties hereto, constitutes a legal,
valid and binding agreement of each of Sync and Merger Co, enforceable against
each of Sync and Merger Co in accordance with its terms, except that (i) the
enforcement hereof may be limited by bankruptcy, insolvency, reorganization,
moratorium or other similar laws now or hereafter in effect relating to
creditors' rights generally and (ii) the remedy of specific performance and
injunctive and other forms of equitable relief may be subject to equitable
defenses and to the discretion of the court before which any proceeding therefor
may be brought.
4.4 FINANCIAL STATEMENTS. Sync has previously delivered to Entrada
(i) the audited balance sheet of Sync and its Subsidiaries as of December 31,
1999 and the related audited statements of income, stockholders' equity and cash
flows for the fiscal year then ended, and the notes thereto (the "Sync Financial
Statements"). The Sync Financial Statements present fairly the assets,
liabilities, financial position, results of operations and cash flows of Sync
and its Subsidiaries as of the dates and for the periods indicated, and have
been prepared in accordance with GAAP consistently applied by Sync.
4.5 NO UNDISCLOSED LIABILITIES. Except as disclosed in Section 4.5 of the
Disclosure Schedule, neither Sync nor any of its Subsidiaries has any
liabilities or obligations, whether accrued, absolute, contingent, matured or
unmatured, that are required to be reflected, accrued or reserved for in an
audited balance sheet of Sync or such Subsidiary or the notes thereto prepared
in accordance with GAAP, other than (i) liabilities and obligations that are
reflected, accrued or reserved for in the balance sheet as of December 31, 1999
included in the Sync Financial Statements (the "Sync Balance Sheet"), (ii)
liabilities and obligations incurred in the ordinary course of business and
consistent with past practice since the date of the Sync Balance Sheet and (iii)
liabilities and obligations which in the aggregate would not have a Material
Adverse Effect on Sync.
4.6 NO APPROVALS OR CONFLICTS. Except as set forth in Section 4.6 of the
Disclosure Schedule, the execution, delivery and performance by Sync and Merger
Co of this Agreement and the consummation by Sync and Merger Co of the
transactions contemplated hereby will not violate, conflict with or result in a
breach by Sync or any of its Subsidiaries of any provision of the certificate of
incorporation or by-laws of Sync or any of its Subsidiaries, violate, conflict
with or result in a breach of any provision of, or constitute a default by Sync
or any of its Subsidiaries (or an event which, with notice or lapse of time or
both, would constitute a default) or give rise to any right of termination,
cancellation or acceleration under, or result in the creation of any Encumbrance
upon any of the properties of Sync or any of its Subsidiaries under, any Sync
Contract (as defined in Section 4.15), violate or result in a breach of any
order, injunction, judgment, ruling, law or regulation of any court or
governmental authority applicable to Sync, any of its Subsidiaries, or any of
their respective properties or except for those required under or in relation to
the HSR Act, require any order, consent, approval or authorization of, or notice
to, or declaration, filing, application, qualification or registration with, any
governmental or regulatory authority, excluding such violations, conflicts and
breaches which, individually or in the aggregate, would not have a Material
Adverse Effect on Sync or prevent or delay the consummation of the transactions
contemplated hereby.
4.7 COMPLIANCE WITH LAW; GOVERNMENTAL AUTHORIZATIONS. Neither Sync nor any
of its Subsidiaries is in violation of any order, injunction, judgment, ruling,
law or regulation of any court or governmental
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authority applicable to the property or business of Sync or any such Subsidiary.
Sync and each of its Subsidiaries have all material licenses, permits and other
governmental authorizations reasonably necessary to conduct their respective
businesses as currently conducted and such licenses, permits and authorizations
are valid and in full force and effect.
4.8 LITIGATION. Except as set forth in Section 4.8 of the Disclosure
Schedule, there are no Claims pending or, to the best knowledge of Sync,
threatened against Sync, any of its Subsidiaries, or the transactions
contemplated by this Agreement before any arbitrator, court or governmental or
regulatory authority or body, which, if decided unfavorably to Sync or such
Subsidiary, would have a Material Adverse Effect on Sync. Except as set forth in
Section 4.8 of the Disclosure Schedule, neither Sync nor any of its Subsidiaries
nor any of their respective assets is subject to any decree, order or judgment
which would have a Material Adverse Effect on Sync.
4.9 ASSETS. Except as set forth in Section 4.9 of the Disclosure Schedule,
on December 31, 1999, Sync and each of its Subsidiaries had and, except with
respect to assets disposed of or acquired in the ordinary course of business and
consistent with past practice since such date, Sync and each of its Subsidiaries
now has, good and valid title to, or holds by valid and existing lease or
license, all the assets reflected as assets of Sync and its Subsidiaries on the
balance sheet as of December 31, 1999 included in the Sync Financial Statements
(the "1999 Sync Balance Sheet") or which would have been reflected on the 1999
Sync Balance Sheet if acquired prior to such date, free and clear of
Encumbrances except for: Encumbrances which secure indebtedness or obligations
which are properly reflected on the 1999 Sync Balance Sheet and Permitted Liens.
Except as set forth in Section 4.9 of the Disclosure Schedule, Sync and its
Subsidiaries own, or have valid leasehold interests in, all material tangible
assets necessary for the operation or conduct of Sync's or such Subsidiary's
business as currently conducted and all such assets are in reasonably good
maintenance, operating condition and repair, normal wear and tear excepted,
other than machinery and equipment under repair or out of service in the
ordinary course of Sync's or such Subsidiary's business.
4.10 ABSENCE OF CERTAIN CHANGES. Except as disclosed in Section 4.10 of
the Disclosure Schedule, since December 31, 1999, the business of Sync and each
of its Subsidiaries has been conducted only in the ordinary course and
consistent with past practice in all material respects, there has not been any
event or development prior to the date hereof which, if it had occurred or
existed after the date hereof, would be a violation of Section 5.2(c), and there
has not been any change, event or development which, individually or in the
aggregate, would reasonably be expected to have a Material Adverse Effect on
Sync.
4.11 TAXES. Sync and each of its Subsidiaries has filed or caused to be
filed all Tax Returns (including estimated Tax Returns) required to be filed by
Sync and each such Subsidiary. To the best knowledge of Sync, all Tax Returns
are complete and accurate in all material respects. All Taxes required to be
shown on such Tax Returns or otherwise due or payable and all additional
assessments of any such Taxes received prior to the date hereof have been paid
in full on the due date for payment thereof. Neither Sync nor any of its
Subsidiaries is required to file any income or franchise tax returns in any
jurisdiction other than the United States and the States of Arizona, Delaware,
Colorado, Connecticut, Florida, Georgia, Illinois, California, Maryland,
Massachusetts, Michigan, Minnesota, Missouri, New Jersey, New York, Ohio,
Oklahoma, Pennsylvania, Rhode Island, Texas and Virginia. The amounts set up as
accruals for Taxes on the Sync Financial Statements are sufficient for the
payment of all Taxes of Sync and each of its Subsidiaries, whether or not
disputed, for all periods ended on and prior to the respective dates thereof. In
addition, the amounts set up as accruals for Taxes on the financial books of
Sync and each of its Subsidiaries on the date hereof are and will be sufficient
for the payment of all Taxes of Sync and each such Subsidiary, whether or not
disputed, for all periods ended on and prior to the Closing Date. Except as
disclosed in Section 4.11 of the Disclosure Schedule, the United States Federal,
California and Massachusetts income tax returns of Sync and each of its
Subsidiaries have been audited by the Internal Revenue Service or other Tax
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Authority or are closed and, to the best knowledge of Sync, there are no
proceedings or claims relating thereto or any facts that could give rise to the
reopening thereof or in connection with any other state or local income tax
returns. No deficiency in the payment of Taxes by Sync or any of its
Subsidiaries for any period has been asserted or, to the best knowledge of Sync,
threatened against Sync or any of its Subsidiaries by any Tax Authority and
remains unsettled as of the date of this Agreement. All Taxes required to be
withheld, collected or deposited by Sync or any of its Subsidiaries have been
timely withheld, collected or deposited and, to the extent required, have been
paid to the relevant Tax Authorities. Neither Sync nor any of its Subsidiaries
owe any amount pursuant to any written or unwritten Tax sharing agreement or
arrangement, or will have any liability after the date hereof in respect of any
written or unwritten Tax sharing agreement or arrangement executed or agreed
prior to the date hereof. There are no Tax liens on any of the assets of Sync or
any of its Subsidiaries, other than liens for current Taxes which are not yet
due or payable. Except as set forth in Section 4.11 of the Disclosure Schedule,
neither Sync nor any of its Subsidiaries has made any agreement, waiver or other
arrangement providing for an extension of time with respect to the assessment or
collection of any Tax against Sync or any such Subsidiary. Neither Sync nor any
of its Subsidiaries has been, or will be, subject to Tax under Section 1374 or
Section 1375 of the Code for any taxable year ending on or prior to the Closing
Date. Neither Sync nor any of its Subsidiaries has filed a consent with the
Internal Revenue Service pursuant to Section 341(f) of the Code or with any
other Tax Authority to any similar effect or made an election under Section 338
of the Code other than as provided for in the terms of this Agreement.
4.12 EMPLOYEE BENEFITS.
(a) Section 4.12 of the Disclosure Schedule contains a true and complete
list of each "employee benefit plan" (within the meaning of section 3(3) of
ERISA, including, without limitation, multiemployer plans within the meaning
of ERISA section 3(37)), stock purchase, stock option, stock bonus,
severance, employment, change-in-control, fringe benefit, collective
bargaining, bonus, incentive, deferred compensation and all other employee
benefit plans, agreements, programs, policies or other arrangements, whether
or not subject to ERISA (including any funding mechanism therefor now in
effect or required in the future as a result of the transaction contemplated
by this Agreement or otherwise), whether formal or informal, oral or
written, legally binding or not, under which any employee or former employee
of Sync or any of its Subsidiaries has any present or future right to
benefits and under which Sync or any of its Subsidiaries may have any
present or future liability. All such plans, agreements, programs, policies
and arrangements shall be collectively referred to as the "Sync Plans."
(b) With respect to each Sync Plan, Sync has delivered to Entrada a
current, accurate and complete copy (or, to the extent no such copy exists,
an accurate description) thereof and, to the extent applicable: any related
trust agreement or other funding instrument; the most recent determination
letter, if the Sync Plan is intended to qualify under Code Section 401(a);
any summary plan description and other written communications (or a
description of any oral communications) by Sync or any of its Subsidiaries
to their respective employees concerning the extent of the benefits provided
under a Sync Plan; and, for the three most recent years, (A) the Form 5500
and attached schedules, (B) audited financial statements, (C) actuarial
valuation reports and (D) attorney's response to an auditor's request for
information.
(c) No Sync Plan is subject to Title IV of ERISA, and neither Sync nor
any member of its Controlled Group has ever contributed to, sponsored, or
been obligated to contribute to any plan subject to Title IV of ERISA.
(d) (i) Each Sync Plan has been established and administered in
accordance with its terms, and in compliance with the applicable provisions
of ERISA, the Code and other applicable laws, rules and regulations;
(ii) no event has occurred and no condition exists that would subject Sync
or
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its Subsidiaries either directly or by reason of its affiliation with any
member of its "Controlled Group" (defined as any organization which is a
member of a controlled group of organizations within the meaning of Code
sections 414(b), (c), (m) or (o)), to any Tax, fine, lien or penalty imposed
by ERISA, the Code or other applicable laws, rules and regulations;
(iii) each Sync Plan which is intended to be qualified within the meaning of
Code section 401(a) is so qualified and has received a favorable
determination letter pursuant to the Tax Reform Act of 1986 and subsequent
legislation as to its qualification, and nothing has occurred, whether by
action or failure to act, that could reasonably be expected to cause the
loss of such qualification; (iv) for each Sync Plan with respect to which a
Form 5500 has been filed, no material change has occurred with respect to
the matters covered by the most recent Form 5500 since the date thereof;
(v) except as set forth on Section 4.12 of the Disclosure Schedule, no Sync
Plan provides retiree welfare benefits and neither Sync nor any of its
Subsidiaries have any obligation to provide any retiree welfare benefits
other than as required by Section 4980B of the Code; and (vi) neither Sync
nor any member of its Controlled Group has engaged in, or is a successor or
parent corporation to an entity that has engaged in, a transaction described
in Sections 4069 or 4212(c) of ERISA.
(e) With respect to any Sync Plan, (i) no actions, suits or claims
(other than routine claims for benefits in the ordinary course) are pending
or, to the knowledge of Sync, threatened, and (ii) no facts or circumstances
exist that could reasonably be expected to give rise to any such actions,
suits or claims.
(f) Except as set forth in Section 4.12 of the Disclosure Schedule, no
Sync Plan exists that could result in the payment to any present or former
employee of Sync or any of its Subsidiaries of any money or other property
or accelerate or provide any other rights or benefits to any present or
former employee or other service provider of Sync or any of its Subsidiaries
as a result of the transactions contemplated by this Agreement. There is no
contract, plan or arrangement (written or otherwise) covering any employee
or other service provider or former employee or other service provider of
Sync or any of its Subsidiaries that, individually or collectively, could
give rise to the payment of any amount that would not be deductible pursuant
to the terms of Section 280G of the Code.
4.13 LABOR RELATIONS. Except as set forth in Section 4.13 of the
Disclosure Schedule, there is no unfair labor practice charge or complaint
pending or, to the best knowledge of Sync, threatened against or otherwise
affecting Sync or any of its Subsidiaries which, if adversely determined, would
reasonably be likely to result in a liability having a Material Adverse Effect
on Sync; there is no labor strike, slowdown, work stoppage, or lockout in
effect, or, to the best knowledge of Sync, threatened against or otherwise
affecting Sync or any of its Subsidiaries, and neither Sync nor any of its
Subsidiaries has experienced any such labor controversy within the past three
years; neither Sync nor any of its Subsidiaries is a party to, or otherwise
bound by, any consent decree with, or citation by, any governmental authority
relating to employees or employment practices; and Sync and each of its
Subsidiaries is in compliance with their obligations pursuant to the WARN Act,
and all other notification and bargaining obligations arising under any
collective bargaining agreement, statute or otherwise. To the best knowledge of
Sync, there is no effort to organize employees of Sync or any of its
Subsidiaries which is pending or threatened.
4.14 PATENTS, TRADEMARKS, TRADE NAMES, ETC. Section 4.14 of the Disclosure
Schedule contains a true and complete list of all patents, trademarks, trade
names, copyrights and pending applications therefor (collectively, the "Sync
Intellectual Property") used or owned by Sync and each of its Subsidiaries and a
list of all licenses and other agreements (collectively, the "Sync License
Agreements") relating thereto. Except as set forth in Section 4.14 of the
Disclosure Schedule, (i) the consummation of the transactions contemplated by
this Agreement will not materially impair any right to use the Sync Intellectual
Property or the Sync License Agreements, (ii) all Sync Intellectual Property and
Sync License Agreements are valid, in good standing and free and clear of liens
or other security
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interests, (iii) neither Sync nor any of its Subsidiaries has received written
or, to the best knowledge of Sync, oral, notice of any claims by any person to
the use of any such Sync Intellectual Property, or challenging or questioning
the validity or effectiveness of any such Sync License Agreement, and (iv) to
the knowledge of Sync, no other person is interfering with, infringing upon,
misappropriating or otherwise coming into conflict with any of the Sync
Intellectual Property.
4.15 CONTRACTS. The contracts and agreements listed in Section 4.15 of the
Disclosure Schedule constitute each contract, instrument, lease, deed or
agreement which is material to the business or operations of Sync and each of
its Subsidiaries (the "Sync Contracts"). Complete copies (or, if oral, written
summaries) of each Sync Contract have been made available to Entrada, including
all of the following Sync Contracts: (i) any indenture, note, mortgage,
installment obligation, or other instrument for or relating to any borrowing of
money; (ii) any guaranty of any obligation; (iii) any agreement, contract,
commitment or arrangement containing any covenant limiting the ability of Sync
or any of its Subsidiaries to engage in any line of business or to compete with
any business or person; (iv) any agreement, contract, commitment or arrangement
relating to capital expenditures with respect to Sync or any of its Subsidiaries
and involving future payments which exceed $25,000 in any 12-month period;
(v) any agreement, contract, commitment or arrangement relating to the
acquisition of assets or any capital stock of any business enterprise which has
not been consummated; (vi) any real property lease; (vii) any contract,
commitment, agreement or arrangement which requires payments in excess of
$25,000 in any 12-month period, to the extent such contract, commitment,
agreement or arrangement is not terminable within 30 days without payment of
premium or penalty; (viii) any license agreement; (ix) any joint venture,
partnership or other agreement for the joint performance of work or services;
(x) each power of attorney that is effective and outstanding; (xi) any agreement
entered into other than in the ordinary course of business containing or
providing for an express undertaking by Sync or its Subsidiaries to be
responsible for consequential damages and (xii) any contract, commitment,
agreement or arrangement with any director, stockholder or Affiliate of Sync or
any of its Subsidiaries. Each Sync Contract is in full force and effect, and is
a legal, valid and binding obligation of Sync or such Subsidiary and, to the
best knowledge of Sync, each of the other parties thereto, enforceable in
accordance with its terms, except that (x) enforcement may be limited by
bankruptcy, insolvency, reorganization, moratorium or other similar laws now or
hereafter in effect relating to creditors' rights generally and (y) the remedy
of specific performance and injunctive and other forms of equitable relief may
be subject to equitable defenses and to the discretion of the court before which
any proceeding therefor may be brought. No condition exists or event has
occurred which (whether with or without notice or lapse of time or both, or the
happening or occurrence of any other event) would constitute a default by Sync,
any of its Subsidiaries, or, to the best knowledge of Sync, any other party
thereto under, or result in a right in termination of, any Sync Contract, by any
other party thereto. To the best knowledge of Sync, no party to any Sync
Contract intends (x) to terminate such Sync Contract or materially amend the
terms thereof, (y) to refuse to renew such Sync Contract upon expiration thereof
or (z) to renew such Sync Contract upon expiration thereof on terms and
conditions which are materially more onerous to Sync or such Subsidiary than
those pertaining to such existing Sync Contract.
4.16 ENVIRONMENTAL MATTERS. Except as to matters which would not be
expected to result, individually or in the aggregate, in a Material Adverse
Effect on Sync, or as set forth in Section 4.16 of the Disclosure Schedule,
(i) neither Sync nor any of its Subsidiaries has received any notice alleging
the material violation of, or any material actual or potential liability
relating to, any applicable Environmental Laws which violation has not been
resolved and, to the best knowledge of Sync, no such notice is threatened or
otherwise expected, (ii) to the best knowledge of Sync, Sync and each of its
Subsidiaries is and has been in material compliance with all applicable
Environmental Laws and, to the best knowledge of Sync, there is no condition
that could prevent or materially interfere with such compliance in the future,
(iii) Sync and each of its Subsidiaries has obtained and is and has been in
material compliance with all required governmental environmental permits,
registrations and
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authorizations with respect to the business of Sync and each of its Subsidiaries
as currently conducted, (iv) to the best knowledge of Sync, no Hazardous
Material has been transported, stored, treated, arranged to be disposed of or
disposed of by Sync or any of its Subsidiaries on or from the real estate owned,
operated or otherwise used by Sync or any of its Subsidiaries or at any other
location, except in compliance with or as otherwise would not result in material
liability under any applicable Environmental Laws, (v) except for successor
liability as owner of real property, neither Sync nor any of its Subsidiaries
has assumed, contractually or by operation of law, any liabilities, potential
liabilities or obligations of any other person or entity under any applicable
Environmental Laws, (vi) neither Sync nor any of its Subsidiaries has entered
into, agreed to, or is subject to any judgment, decree, order or other similar
requirement of any governmental authority under any Environmental Laws,
(vii) to the best knowledge of Sync, there are no (w) underground or aboveground
storage tanks, (x) surface impoundments, (y) landfills or (z) sewer or septic
systems currently or formerly present at or about any of the properties or
facilities currently or, to the best knowledge of Sync, formerly owned, operated
or otherwise used by Sync or any of its Subsidiaries that could result in
material liability to Sync or any such Subsidiary under any applicable
Environmental Laws, and (viii) to the best knowledge of Sync, there are no
actions, activities, events, conditions or circumstances occurring or existing,
including without limitation the release, threatened release, emission,
discharge, generation, treatment, storage or disposal of Hazardous Materials,
that can reasonably expected to result in any material liability or obligation
of Sync or any of its Subsidiaries under or relating to any Environmental Laws.
4.17 INSURANCE. Section 4.17 of the Disclosure Schedule lists all
insurance policies of Sync and each of its Subsidiaries covering the assets,
employees and operations of Sync and each of its Subsidiaries as of the date
hereof and any pending claim under such policies. All such policies are in full
force and effect, all premiums due thereon have been paid by Sync or such
Subsidiary and Sync and each of its Subsidiaries has complied in all material
respects with the provisions of such policies and has not received any notice
from any of its insurance brokers or carriers that such broker or carrier will
not be willing or able to renew their existing coverage.
4.18 MATERIAL CUSTOMERS AND SUPPLIERS. Section 4.18 of the Disclosure
Schedule sets forth the names of the ten suppliers of Sync and its Subsidiaries
whom Sync and its Subsidiaries paid the greatest sum of money in respect of
products, services and materials sold to Sync and its Subsidiaries and the ten
customers of Sync and its Subsidiaries from whom Sync and its Subsidiaries
received the greatest sum of money in respect of products or services provided
by Sync and its Subsidiaries between January 1, 1999 and December 31, 1999.
4.19 REAL PROPERTY.
(a) The real property listed in Section 4.19(a) of the Disclosure
Schedule constitutes all of the real property that any of Sync and its
Subsidiaries owns as of the date hereof (the "Sync Owned Real Property").
Except as set forth in Section 4.19(a) of the Disclosure Schedule, with
respect to each such parcel of Sync Owned Real Property the identified owner
has good and marketable fee simple title to the parcel of real property,
free and clear of any Encumbrance (other than Permitted Liens).
(b) The leases listed in Section 4.15 of the Disclosure Schedule
constitute all the real property leases which are used in the conduct of the
business of Sync and its Subsidiaries as it is presently being conducted
and/or to which Sync or its Subsidiaries is a party (the "Sync Leases," and
such property, "Sync Leased Property"; the Sync Leased Property, together
with the Sync Owned Real Property, the "Sync Real Property"). The Sync Owned
Real Property and the Sync Leased Property is all of the real property which
is used for the conduct of the business of Sync and its Subsidiaries as is
presently conducted.
(c) Since December 31, 1999, neither Sync nor any of its Subsidiaries
has sold, assigned, transferred or otherwise disposed of, or granted any
security interest in or lien on, any Sync Lease.
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With respect to each Sync Lease, all accrued and payable rents required by
each Sync Lease to be paid by Sync or any of its Subsidiaries have been paid
or adequate provision for such payment has been made, no written notice of
default or termination has been given or received by Sync or any of its
Subsidiaries, and, to the best knowledge of Sync, no material event of
default has occurred, no condition exists and no event has occurred that,
with the giving of notice or the lapse of time, would become a material
default or permit early termination, under any Sync Lease, and (iii) Sync
has, and immediately after the Closing, Entrada will have, good, valid and
enforceable title to the leasehold estate in the Sync Leased Property, free
and clear of any Encumbrance (other than Permitted Liens). Except as set
forth in Section 4.19(c) of the Disclosure Schedule, no third party consent
or approval under any Sync Lease is required for the consummation of the
transactions contemplated herein.
(d) Sync has obtained all easements and rights of way required from all
governmental jurisdictions or from private parties for the normal use and
operation of the business on the Sync Owned Real Property as heretofore
conducted.
(e) There is no pending or, to Sync's knowledge, threatened
condemnation, expropriation, eminent domain or similar proceeding affecting
any of the Sync Real Property and Sync has not received any written notice
of any of the same.
(f) Each Sync Owned Real Property and, to Sync's knowledge, each Sync
Leased Property and all buildings, structures, fixtures and improvements on
each Sync Owned Real Property and, to Sync's knowledge, each Sync Leased
Property, and all use of any thereof by Sync, conform with all applicable
building, zoning, subdivision, land use, fire and other laws pertaining to
or affecting real property, except where the failure to so conform would not
have a Material Adverse Effect on Sync. Each occupied Sync Owned Real
Property and, to Sync's knowledge, each occupied Sync Leased Property is
occupied under a valid and existing certificate of occupancy for such Sync
Real Property. Sync has taken all corrective action indicated in all written
notices or orders to Sync to correct violations of laws issued by any
governmental authority having jurisdiction against or affecting the Sync
Real Property. The Sync Real Property is not in violation of any restrictive
covenant, condition, restriction or limitation which would have a Material
Adverse Effect on Sync or a material adverse effect on the use thereof as
currently utilized.
(g) No Sync Owned Real Property is subject to any contract or other
restriction of any nature whatsoever (recorded or unrecorded) preventing or
limiting the right of Sync to convey or use it as currently operated.
(h) All Sync Real Property and the improvements thereon are supplied
with the utilities necessary for the operation of such facilities as
currently operated.
(i) Sync has not received written notice of any special assessment
relating to any Sync Real Property or any portion thereof, and, to Sync's
knowledge, there are no pending or threatened special assessments.
(j) Sync has not obtained any environmental, engineering or other
studies or reports prepared for Sync since January 1, 1995 which primarily
deal with the ownership, operation, maintenance or management of the Sync
Real Property.
4.20 INVESTMENT COMPANY ACT STATUS. Neither Sync nor any of its
Subsidiaries is an "investment company," or a company "controlled" by an
"investment company," within the meaning of the Investment Company Act of 1940.
4.21 PRODUCT LIABILITY. Except as set forth in Section 4.21 of the
Disclosure Schedule, neither Sync nor any of its Subsidiaries has received
written notice of any claim or threatened claim against Sync or any such
Subsidiary for product liability, nor, to the best knowledge of Sync, has Sync
or any of
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its Subsidiaries received oral notice of any claim or threatened claim against
Sync or any of its Subsidiaries for product liability.
4.22 BOOKS AND RECORDS. The financial books and records pertaining to the
business of Sync and its Subsidiaries are complete and correct in all material
respects, have been maintained in accordance with good business practice, and
reflect the basis for the financial condition and results of operations of Sync
set forth in the Sync Financial Statements referred to in Section 4.4 hereto.
4.23 NO BROKERS' OR OTHER FEES. No broker, finder or investment banker
(other than Alliant Partners) is entitled to any fee or commission in connection
with the transactions contemplated hereby based upon arrangements made by or on
behalf of Sync or any of its Subsidiaries.
4.24 SYNC REPORTS. Since January 1997, Sync has filed all forms, reports
and documents with the Commission required to be filed by it pursuant to the
federal securities laws and the Commission rules and regulations thereunder (the
"Sync Commission Filings"), and all such forms, reports and documents filed with
the Commission have complied in all material respects with all applicable
requirements of the federal securities laws and the Commission rules and
regulations promulgated thereunder. Sync has made available to Entrada true and
complete copies of all Sync Commission Filings filed by Sync with the Commission
since January 1, 1997. As of their respective dates, the Sync Commission Filings
did not contain any untrue statement of material fact or omit to state a
material fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading.
4.25 NASDAQ. Sync's Common Stock is currently trading on the NASDAQ
National Market and Sync currently satisfies the "maintenance criteria" for
continued trading thereon. Except as set forth in Section 4.25 of the Disclosure
Schedule, Sync has received no notice from NASDAQ of a potential revocation of
its National Market listing, nor is Sync aware of any facts that would form the
basis of such a notice.
ARTICLE V
COVENANTS AND AGREEMENTS
5.1 CONDUCT OF BUSINESS BY ENTRADA. The Shareholder covenants that, except
(i) as otherwise expressly contemplated by this Agreement or (ii) as consented
to by Sync in writing, from and after April 10, 2000 and until the Effective
Time, the Shareholder shall cause Entrada to, and Entrada shall and shall cause
each of its Subsidiaries to:
(a) use all reasonable efforts consistent with good business judgment to
(i) preserve intact the present business organization of Entrada and its
Subsidiaries and pay payables and collect receivables in a manner consistent
with past practice and otherwise operate Entrada and its Subsidiaries in the
ordinary and regular course of business consistent with past practice; (ii)
maintain Entrada's and its Subsidiaries' books and records in accordance
with past practices; (iii) keep available the services of Entrada's and its
Subsidiaries' officers and employees; and (iv) maintain satisfactory
relationships with licensors, suppliers, creditors, distributors, customers
and others having material business relationships with Entrada and its
Subsidiaries;
(b) notify Sync of any change in the normal course of business or
operations of Entrada or its Subsidiaries and of any governmental
complaints, investigations or hearings of which Entrada or its Subsidiaries
is notified (or communications received by Entrada or its Subsidiaries
indicating that the same may be contemplated), or the institution or
settlement of litigation or any claim, in each case involving Entrada or its
Subsidiaries, and to keep Sync informed of such events;
(c) not (i) cause to be issued or sold any shares of capital stock or
debt or equity securities of Entrada or its Subsidiaries or Entrada Capital
Stock Equivalents or issue, grant or enter into
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any options, warrants, rights, subscription agreements or commitments of any
kind with respect thereto; (ii) directly or indirectly cause to be
purchased, redeemed or otherwise acquired or disposed of any shares of
capital stock of Entrada or its Subsidiaries; (iii) declare, set aside or
pay any dividend or other distribution; (iv) reclassify, combine, split,
subdivide or redeem, purchase or otherwise acquire, directly or indirectly,
any of its capital stock or any Entrada Capital Stock Equivalents, other
than pursuant to Entrada Plans in accordance with their terms as in effect
on the date hereof; (v) permit or allow Entrada or its Subsidiaries to
borrow or agree to borrow any funds or incur, whether directly or by way of
guarantee, any obligation for borrowed money, other than in the ordinary
course of business and consistent with past practice; (vi) subject any of
the assets of Entrada or any of its Subsidiaries (real, personal or mixed,
tangible or intangible) to any Encumbrance or otherwise permit or allow the
sale, lease, transfer or disposition of any assets of Entrada or its
Subsidiaries (real, personal or mixed, tangible or intangible), other than
in the ordinary course of business and consistent with past practice; (vii)
assume, guarantee, or otherwise become responsible for the obligations of,
or make any loans or advances to, any other individual, firm or corporation;
(viii) waive or release any rights of material value, or cancel, compromise,
release or assign any material indebtedness owed to Entrada or its
Subsidiaries or any material claims held by Entrada or its Subsidiaries;
(ix) except for capital expenditures not to exceed $5,000, make any
investment or expenditure of a capital nature either by purchase of stock or
securities, contributions to capital, property transfer or otherwise; (x)
enter into any new material line of business; (xi) cancel or terminate any
insurance policy naming Entrada or its Subsidiaries as a beneficiary or a
loss payable payee; (xii) enter into any collective bargaining agreements;
(xiii) increase the compensation or fringe benefits of any of the officers
or directors of Entrada or any of its Subsidiaries or, other than in
accordance with past practice, effect any material general increase in the
compensation or fringe benefits of the employees of Entrada or any of its
Subsidiaries or pay or agree to pay any pension, retirement allowance, or
other benefit not required by any existing employee benefit plan or any
bonus to any such officers or employees, commit Entrada or any of its
Subsidiaries to any employment agreement or employee benefit plan with or
for the benefit of any of Entrada's or its Subsidiaries' officers or
employees or any other person, or alter, amend, terminate in whole or in
part, or curtail or permanently discontinue contributions to, any pension
plan or any other employee benefit plan; (xiv) except as may be required as
a result of a change in law or in GAAP, change any of the accounting
practices or principles used by Entrada or its Subsidiaries; (xv) enter into
or terminate any license, distributorship, dealer, sales representative,
joint venture, credit or similar agreement, or any contract, agreement or
transaction involving a total remaining commitment of at least $25,000;
(xvi) except as may be required by law, make any material Tax election, make
or change any method of accounting with respect to Taxes, file any amended
Tax Returns that may have a Material Adverse Effect on the Tax position of
Entrada or any of its Subsidiaries or settle or compromise any material
Federal, state, local or foreign Tax liability; (xvii) enter into any "non-
compete" or similar agreement; (xviii) amend the certificate of
incorporation or by-laws of Entrada or any of its Subsidiaries; (xix) take
any action with knowledge that such action would reasonably be expected to
result in any of the conditions contained in Article VII not being
satisfied; (xx) or agree to do any of the foregoing; and
(d) comply in all material respects with all applicable laws, including,
without limitation, applicable Environmental Laws.
5.2 CONDUCT OF BUSINESS BY SYNC. Sync covenants that, except (i) as
otherwise expressly contemplated by this Agreement or (ii) as consented to by
the Shareholder in writing, from and after April 10, 2000 and until the
Effective Time Sync shall, and shall cause each of its Subsidiaries to:
(a) use all reasonable efforts consistent with good business judgment to
(i) preserve intact the present business organization of Sync and its
Subsidiaries and pay payables and collect receivables
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in a manner consistent with past practice and otherwise operate Sync and its
Subsidiaries in the ordinary and regular course of business consistent with
past practice; (ii) maintain Sync's and its Subsidiaries' books and records
in accordance with past practices; (iii) keep available the services of
Sync's and its Subsidiaries' officers and employees; and (iv) maintain
satisfactory relationships with licensors, suppliers, creditors,
distributors, customers and others having material business relationships
with Sync and its Subsidiaries;
(b) notify Entrada of any change in the normal course of business or
operations of Sync or its Subsidiaries and of any governmental complaints,
investigations or hearings of which Sync or its Subsidiaries is notified (or
communications received by Sync or its Subsidiaries indicating that the same
may be contemplated), or the institution or settlement of litigation or any
Claim, in each case involving Sync or its Subsidiaries, and to keep Entrada
informed of such events;
(c) not (i) cause to be issued or sold any shares of capital stock or
debt or equity securities of Sync or its Subsidiaries or Sync Capital Stock
Equivalents, except for (x) the exercise of outstanding stock options, or
issue, grant or enter into any options, warrants, rights, subscription
agreements or commitments of any kind with respect thereto, except in the
ordinary course to non-executive employees of Sync, (y) the issuance of the
Contribution Shares and (z) the sale of 700,000 shares of Sync's Series A
Preferred Stock to Entrada Holdings, LLC (which occurred on May 12, 2000),
(ii) directly or indirectly cause to be purchased, redeemed or otherwise
acquired or disposed of any shares of capital stock of Sync or its
Subsidiaries; (iii) declare, set aside or pay any dividend or other
distribution; (iv) reclassify, combine, split, subdivide or redeem, purchase
or otherwise acquire, directly or indirectly, any of its capital stock or
any Sync Capital Stock Equivalents, other than pursuant to Sync Plans in
accordance with their terms as in effect on the date hereof; (v) permit or
allow Sync or its Subsidiaries to borrow or agree to borrow any funds or
incur, whether directly or by way of guarantee, any obligation for borrowed
money, other than in the ordinary course of business and consistent with
past practice; (vi) subject any of the assets of Sync or any of its
Subsidiaries (real, personal or mixed, tangible or intangible) to any
Encumbrance or otherwise permit or allow the sale, lease, transfer or
disposition of any assets of Sync or its Subsidiaries (real, personal or
mixed, tangible or intangible), other than in the ordinary course of
business and consistent with past practice; (vii) assume, guarantee, or
otherwise become responsible for the obligations of, or make any loans or
advances to, any other individual, firm or corporation; (viii) waive or
release any rights of material value, or cancel, compromise, release or
assign any material indebtedness owed to Sync or its Subsidiaries or any
material claims held by Sync or its Subsidiaries; (ix) except for (A)
capital expenditures in the ordinary course of business and (B) capital
expenditures not to exceed $5,000, make any investment or expenditure of a
capital nature either by purchase of stock or securities, contributions to
capital, property transfer or otherwise; (x) enter into any new material
line of business; (xi) cancel or terminate any insurance policy naming Sync
or its Subsidiaries as a beneficiary or a loss payable payee; (xii) enter
into any collective bargaining agreements; (xiii) increase the compensation
or fringe benefits of any of the officers or directors of Sync or any of its
Subsidiaries or, other than in accordance with past practice, effect any
material general increase in the compensation or fringe benefits of the
employees of Sync or any of its Subsidiaries or pay or agree to pay any
pension, retirement allowance, or other benefit not required by any existing
employee benefit plan to any such officers or employees, commit Sync or any
of its Subsidiaries to any employment agreement or employee benefit plan
with or for the benefit of any of Sync's or its Subsidiaries' officers or
employees or any other person, or alter, amend, terminate in whole or in
part, or curtail or permanently discontinue contributions to, any pension
plan or any other employee benefit plan; (xiv) except as may be required as
a result of a change in law or in GAAP, change any of the accounting
practices or principles used by Sync or its Subsidiaries; (xv) enter into or
terminate any license, distributorship, dealer, sales representative, joint
venture, credit or similar agreement, or any contract, agreement or
transaction involving a total remaining commitment of at least $25,000;
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(xvi) except as may be required by law, make any material Tax election, make
or change any method of accounting with respect to Taxes, file any amended
Tax Returns that may have a Material Adverse Effect on the Tax position of
Sync or any of its Subsidiaries or settle or compromise any material
Federal, state, local or foreign Tax liability; (xvii) enter into any "non-
compete" or similar agreement; (xviii) amend the certificate of
incorporation or by-laws of Sync or any of its Subsidiaries; (xix) take any
action with knowledge that such action would reasonably be expected to
result in any of the conditions contained in Article VI not being satisfied;
or (xx) agree to do any of the foregoing; and
(d) comply in all material respects with all applicable laws, including,
without limitation, applicable Environmental Laws.
5.3 ACCESS TO BOOKS AND RECORDS; COOPERATION.
(a) ENTRADA. During the period commencing on the date hereof and
ending on the Closing Date, Entrada will afford to Sync and its counsel,
accountants and other authorized representatives access, at all reasonable
times upon reasonable advance notice, to the officers, directors, employees,
accountants and other advisors and agents, properties, books, records and
contracts of Entrada and its Subsidiaries, and the right to make copies and
extracts from such books, records and contracts, and to furnish Sync with
all financial, operating and other data and information concerning Entrada
and its Subsidiaries as Sync and its advisors may reasonably request. Sync
will hold, and will use its best efforts to cause its representatives to
hold, any such information which is non-public in confidence to the extent
required by, and in accordance with, the provisions of the confidentiality
agreement dated April 19, 1999 between Sync and Entrada (the
"Confidentiality Agreement").
(b) SYNC. During the period commencing on the date hereof and ending
on the Closing Date, Sync will afford to Entrada and its counsel,
accountants and other authorized representatives access, at all reasonable
times upon reasonable advance notice, to the officers, directors, employees,
accountants and other advisors and agents, books, records and contracts of
Sync and its Subsidiaries, and the right to make copies and extracts from
such books, records and contracts, and to furnish Entrada with all
financial, operating and other data and information concerning Sync and its
Subsidiaries as Entrada may reasonably request. Entrada will hold, and will
use its best efforts to cause its representatives to hold, any such
information which is non-public in confidence to the extent required by, and
in accordance with, the provisions of the Confidentiality Agreement.
5.4 FILINGS AND CONSENTS. Sync and Entrada shall use all reasonable
efforts to obtain and to cooperate in obtaining any consent, approval,
authorization or order of, and in making any registration or filing with, any
governmental agency or body or other third party required in connection with the
execution, delivery or performance of this Agreement. The parties made all
appropriate filings under the HSR Act and obtained early termination of the
waiting period under such act.
5.5 NO SOLICITATION.
(a) Sync, the Shareholder and its Subsidiaries, and the officers,
directors, employees or other agents of Sync, the Shareholder and its
Subsidiaries, will not, directly or indirectly, (i) take any action to
solicit, initiate or encourage any Takeover Proposal (as defined below) or
(ii) subject to the terms of Section 5.5(b), engage in negotiations with, or
disclose any nonpublic information relating to Sync or Entrada (as
applicable) to, or afford access to the properties, books or records of Sync
or Entrada (as applicable) to, any person that has advised Sync, the
Shareholder or Entrada that it may be considering making, or that has made,
a Takeover Proposal. Each of Sync and the Shareholder will promptly notify
the other after receipt of any Takeover Proposal or any notice that any
person is considering making a Takeover Proposal or any request for
nonpublic
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information relating to Sync or Entrada, as applicable, or for access to the
properties, books or records of Sync or Entrada, as applicable, by any
person that has advised Sync or the Shareholder, as applicable, that it may
be considering making, or that has made, a Takeover Proposal and will keep
the Shareholder or Sync, as applicable, fully informed of the status and
details of any such Takeover Proposal notice or request. For purposes of
this Agreement, "TAKEOVER PROPOSAL" means any offer or proposal for, or any
indication of interest in, a merger or other business combination involving
Sync or Entrada, or the acquisition of any significant equity interest in,
or a significant portion of the assets of, Sync or Entrada, other than the
transactions contemplated by this Agreement.
(b) Notwithstanding Section 5.5(a), if an unsolicited Takeover Proposal,
or an unsolicited written expression of interest that can reasonably be
expected to lead to a Takeover Proposal, shall be received by the Board of
Directors of Sync or the Shareholder, then, to the extent the Board of
Directors of Sync or the Shareholder, as applicable, believes in good faith
(after consultation with its financial advisor) that such Takeover Proposal
would, if consummated, result in a transaction more favorable to Sync's or
the Shareholder's stockholders, as applicable, from a financial point of
view than the transaction contemplated by this Agreement (any such more
favorable Takeover Proposal being referred to in this Agreement as a
"SUPERIOR PROPOSAL"), and the Board of Directors of Sync or the Shareholder,
as applicable, determines in good faith after consultation with outside
legal counsel that it is necessary for such Board of Directors to evaluate
the Superior Proposal in order to comply with its fiduciary duties to
stockholders under applicable law, Sync or the Shareholder, as applicable,
and its officers, directors, employees, investment bankers, financial
advisors, attorneys, accountants and other representatives retained by it
may furnish in connection therewith information and take such other actions
as are consistent with the fiduciary obligations of its Board of Directors,
and such actions shall not be considered a breach of this Section 5.5 or any
other provisions of this Agreement; PROVIDED, HOWEVER, that Sync and the
Shareholder shall not, and shall not permit any of their respective
officers, directors, employees or other representatives to, agree to or
endorse any Takeover Proposal regarding Sync or Entrada, as applicable,
unless Sync or the Shareholder, as applicable, shall have (i) terminated
this Agreement pursuant to Section 8.1(e), and (ii) agreed to pay, without
interest, to the Shareholder or Sync, as applicable, the sum of $1,000,000
(the "Break-up Fee") no later than thirty (30) days after the closing of the
transaction resulting from the Superior Proposal.
5.6 PROXY; REGISTRATION STATEMENT. As soon as practicable after the date
hereof, Sync shall prepare and file with the Commission an amendment to its
pending Registration Statement on Form S-4 (Commission Registration Number
333-37510) with respect to the shares of Sync Common Stock to be issued
constituting the Merger Consideration and the Contribution Shares and a proxy
statement and related materials to be furnished by the Company to the holders of
Sync Common Stock in connection with the Merger and the name change referred to
in Section 1.6 of this Agreement (the "Proxy Statement"). As soon as practicable
following receipt of final comments from the staff of the Commission on the
Proxy Statement and the Registration Statement (or advice that such staff will
not review such filing), Sync shall use its best efforts to have the
Registration Statement declared effective by the Commission and to maintain the
effectiveness of such Registration Statement until completion of the Merger.
Promptly after the effectiveness of the Registration Statement, Sync shall mail
the Proxy Statement to all holders of Sync Common Stock. Sync, the Shareholder
and Entrada shall cooperate with each other in the preparation of the Proxy
Statement and the Registration Statement and shall advise the other in writing
if, at any time prior to the Sync Meeting, any such party shall obtain knowledge
of any facts that might make it necessary or appropriate to amend or supplement
the Proxy Statement or the Registration Statement in order to make the
statements contained or incorporated by reference therein not misleading or to
comply with applicable law. Notwithstanding the foregoing, each party shall be
responsible for the information and disclosures which it makes or incorporates
by reference in all regulatory filings, the Proxy Statement and the Registration
Statement.
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5.7 SHAREHOLDERS' MEETING. Sync shall take all action necessary, in
accordance with applicable law and its Certificate of Incorporation and By-Laws,
to convene a meeting of the holders of the Sync Common Stock (the "Sync
Meeting") as promptly as practicable for the purpose of considering and taking
action required by this Agreement. Except to the extent legally required for the
discharge by the Board of Directors of its fiduciary duties, the Board of
Directors of Sync shall recommend that the holders of the Sync Common Stock vote
in favor of and approve the Merger and adopt this Agreement at the Sync Meeting.
5.8 LISTING. Sync shall use its best efforts to list on the Nasdaq
National Market upon official notice of issuance the Sync Common Stock to be
issued in the Merger and the Contribution Shares.
5.9 COVENANT TO SATISFY CONDITIONS. Each party hereto agrees to use all
reasonable efforts to insure that the conditions set forth in Article VI and
Article VII, respectively hereof are satisfied, insofar as such matters are
within the control of such party.
5.10 BEST EFFORTS AND FURTHER ASSURANCES. Each of the parties to this
Agreement shall use its best efforts to effectuate the transactions contemplated
hereby and to fulfill and cause to be fulfilled the conditions to closing under
this Agreement. Each party hereto, at the reasonable request of another party
hereto, shall at any time execute and deliver such other instruments and do and
perform such other acts and things as may be necessary or desirable, including
without limitation the transfer to Entrada of all right, title and interest in
the Entrada Assets, for effecting completely the consummation of this Agreement
and the transactions contemplated hereby.
ARTICLE VI
CONDITIONS TO THE SHAREHOLDER'S OBLIGATIONS
The obligation of the Shareholder to effect the Closing under this Agreement
is subject to the satisfaction, at or prior to the Closing, of each of the
following conditions, unless validly waived in writing by the Shareholder.
6.1 REPRESENTATIONS AND WARRANTIES. (a) Each of the representations and
warranties of Sync set forth in this Agreement shall be true and correct as of
April 10, 2000 and as of the Closing Date as if made at and as of the Closing
Date (except, in each case, for those representations and warranties which
address matters only as of a particular date, in which case they shall be true
and correct, or true and correct in all material respects, as applicable, as of
such date).
6.2 PERFORMANCE. Sync shall have performed and complied in all material
respects with all agreements and obligations required by this Agreement to be so
performed or complied with by it prior to the Closing.
6.3 OFFICER'S CERTIFICATE. Sync shall have delivered to the Shareholder a
certificate, dated as of the Closing Date and executed by the President or a
Senior Vice President of Sync, certifying to the fulfillment of the conditions
specified in Sections 6.1 and 6.2 hereof.
6.4 HSR ACT. All applicable waiting periods under the HSR Act with respect
to the transactions contemplated hereby shall have expired or been terminated.
6.5 SHAREHOLDER APPROVAL. This Agreement and the Merger shall have been
approved and adopted by the requisite vote of shareholders of Sync.
6.6 REGISTRATION STATEMENT. The Registration Statement shall have become
effective in accordance with the provisions of the Securities Act and no stop
order suspending the effectiveness of the Registration Statement shall have been
issued by the Commission and remain in effect.
6.7 NASDAQ. The Sync Common Stock issuable pursuant to the Merger shall
have been designated for inclusion in the Nasdaq National Market (the "Nasdaq").
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6.8 INJUNCTIONS. On the Closing Date there shall be no injunction, writ,
preliminary restraining order or other order in effect of any nature issued by a
United States Federal or state court or governmental authority of competent
jurisdiction directing that the transactions provided for herein not be
consummated as provided herein.
6.9 CONSENTS. All material orders, consents, approvals, permits,
authorizations, notices, declarations, filings, applications, qualifications and
registrations identified in Section 4.6 of the Disclosure Schedule and necessary
to effect the Closing or continue the business of Entrada after the Closing
shall have been obtained.
6.10 NON-COMPETITION AGREEMENT. Prior to the Closing, pursuant to Section
1.7(d), Sync shall have entered into a Non-Competition Agreement with the
Shareholder in such form and substance as Sync and the Shareholder may mutually
agree.
ARTICLE VII
CONDITIONS TO SYNC'S OBLIGATION
The obligation of Sync to effect the Closing under this Agreement is subject
to the satisfaction, at or prior to the Closing, of each of the following
conditions, unless validly waived in writing by Sync.
7.1 REPRESENTATIONS AND WARRANTIES. (a) Each of the representations and
warranties of the Shareholder set forth in this Agreement that shall be true and
correct as of April 10, 2000 and as of the Closing Date as if made at and as of
the Closing Date, (except, in each case, for those representations and
warranties which address matters only as of a particular date, in which case
they shall be true and correct, or true and correct in all material respects, as
applicable, as of such date).
7.2 PERFORMANCE. The Shareholder and Entrada shall have performed and
complied in all material respects with all agreements and obligations required
by this Agreement to be so performed or complied with by the Shareholder and
Entrada prior to the Closing.
7.3 OFFICER'S CERTIFICATE. The Shareholder and Entrada shall have
delivered to Sync a certificate, dated as of the Closing Date and executed by
the President or a Senior Vice President each of the Shareholder and Entrada,
certifying to the fulfillment of the conditions specified in Sections 7.1 and
7.2 hereof.
7.4 HSR ACT. All applicable waiting periods under the HSR Act with respect
to the transactions contemplated hereby shall have expired or been terminated.
7.5 SHAREHOLDER APPROVAL. This Agreement and the Merger shall have been
approved and adopted by the requisite vote of shareholders of Sync.
7.6 REGISTRATION STATEMENT. The Registration Statement shall have become
effective in accordance with the provisions of the Securities Act and no stop
order suspending the effectiveness of the Registration Statement shall have been
issued by the Commission and remain in effect.
7.7 INJUNCTIONS. On the Closing Date there shall be no injunction, writ,
preliminary restraining order or other order in effect of any nature issued by a
United States Federal or state court or governmental authority of competent
jurisdiction directing that the transactions provided for herein not be
consummated as provided herein.
7.8 CONSENTS. All material orders, consents, approvals, permits,
authorizations, notices, declarations, filings, applications, qualifications and
registrations identified in Section 3.6 of the Disclosure Schedule and necessary
to effect the Closing or continue the business of Entrada after the Closing
shall have been obtained. Without limiting the foregoing, Coast Business
Credit, Inc. shall have agreed to continue to provide financing to the Surviving
Corporation in the same amount and on the
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same terms and conditions as it has provided such financing to Entrada prior to
the date of this Agreement.
7.9 NON-COMPETITION AGREEMENT. Prior to the Closing, pursuant to Section
1.7(d), Sync shall have entered into a Non-Competition Agreement with the
Shareholder in such form and substance as Sync and the Shareholder may mutually
agree.
ARTICLE VIII
TERMINATION
8.1 TERMINATION. This Agreement may be terminated and the transactions
contemplated hereby may be abandoned at any time prior to the Effective Time:
(a) by the mutual consent of Sync and the Shareholder;
(b) by Sync, if the Closing has not occurred on or before September 15,
2000, unless the failure of such consummation shall be due to any materially
false, inaccurate or misleading representations and warranties of Sync
contained herein or the breach or failure of Sync to comply in all material
respects with the agreements and covenants contained herein to be performed
by Sync on or before September 15, 2000;
(c) by the Shareholder, if the Closing has not occurred on or before
September 15, 2000, unless the failure of such consummation shall be due to
any materially false, inaccurate or misleading representations and
warranties of the Shareholder contained herein or the breach or failure of
the Shareholder to comply in all material respects with the agreements and
covenants contained herein to be performed by the Shareholder on or before
September 15, 2000;
(d) by either Sync or the Shareholder, if any court or governmental
authority of competent jurisdiction shall have issued an order, decree or
ruling or taken any other action restraining, enjoining or otherwise
prohibiting the transactions contemplated hereby and such order, decree or
ruling or other action shall have become final and nonappealable;
(e) by either Sync or the Shareholder, upon (i) receipt of an
unsolicited proposal that constitutes a Superior Proposal and
(ii) agreement to pay the Break-up Fee; or
(f) by Sync in the event its Shareholders vote not to approve this
Agreement, provided that Sync shall then pay to Entrada a fee of Two Hundred
Fifty Thousand Dollars ($250,000.00) within thirty (30) days of such
shareholder vote.
8.2 PROCEDURE AND EFFECT OF TERMINATION. In the event of the termination
of this Agreement and the abandonment of the transactions contemplated hereby by
Sync or the Shareholder pursuant to Section 8.1 hereof, written notice thereof
shall forthwith be given to the other parties. If this Agreement is terminated
and the transactions contemplated by this Agreement are abandoned as provided
herein, no party to this Agreement will have any liability under this Agreement
to any other except (i) that nothing herein shall relieve any party from any
liability for making any false, inaccurate or misleading representations or
warranties, or the breach of any covenants and agreements set forth in this
Agreement and (ii) as contemplated by Section 9.1 and (iii) if applicable,
payment of the Break-up Fee pursuant to Section 5.5(b) or the $250,000.00 fee
pursuant to Section 8.1(f).
ARTICLE IX
INDEMNIFICATION
9.1 INDEMNIFICATION BY THE SHAREHOLDER OF SYNC. Subject to the limits set
forth in this Section 9.1, the Shareholder agrees that from and after the date
hereof the Shareholder shall, indemnify, defend
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and hold Sync, its Subsidiaries (including, without limitation, Entrada after
the Effective Date) and their respective officers, directors, partners,
stockholders, employees, agents and representatives (collectively, the "Sync
Indemnified Persons") harmless from and in respect of any and all losses,
damages, costs and reasonable expenses (including, without limitation,
reasonable fees and expenses of counsel) (collectively, "Losses"), that such
Sync Indemnified Persons or Sync or its Subsidiaries may incur arising out of or
due to (i) any false, inaccurate, or misleading representation or warranty or
the breach of any covenant by the Shareholder or Entrada in the Agreement,
(ii) the termination of the Case Defined Benefit Plan; (iii) the early
termination by Entrada of its real estate lease for property located in Aurora,
Illinois; and (iv) the failure of Entrada to pay any owed Taxes and to file all
required Tax Returns, and all fines and penalties associated therewith. The
matters referred to in clause (i) of this paragraph (a) shall be subject to
indemnification only as to claims made within the period ending twenty-four (24)
months following the Effective Date (except as to matters referred to in Section
3.16, for which the time limit is the applicable statute of limitations).
9.2 INDEMNIFICATION BY SYNC OF THE SHAREHOLDER. Subject to the limits set
forth in this Section 9.1, Sync agrees that from and after the date hereof Sync
shall, for claims made within the period ending twenty-four (24) months
following the Effective Date (except as to matters referred to in Section 4.16,
for which the time limit is the applicable statute of limitations) indemnify,
defend and hold the Shareholder and its officers, directors, partners,
stockholders, employees, agents and representatives (collectively, the "Entrada
Indemnified Persons" and, together with the Sync Indemnified Persons, the
"Indemnified Persons") harmless from and in respect of any and all Losses that
such Entrada Indemnified Persons may incur arising out of or due to any false,
inaccurate, or misleading representation or warranty or the breach of any
covenant by Sync in the Agreement. The matters referred to in this paragraph
(b) shall be subject to indemnification only as to claims made within the period
ending twenty-four (24) months following the Effective Date (except as to
matters referred to in Section 3.16, for which the time limit is the applicable
statute of limitations).
9.3 NOTICE AND OPPORTUNITY TO DEFEND. If there occurs an event which a
party asserts is an indemnifiable event pursuant to Section 9.1(a) or 9.1(b),
then Sync or the Shareholder as applicable, shall promptly notify the
Shareholder or Sync, respectively (the "Indemnifying Party"). If such event
involves any claim, or the commencement of any action or proceeding, by a third
person against any of the Indemnified Persons, the Indemnified Person will give
the Indemnifying Party prompt written notice of such claim or the commencement
of such action or proceeding; PROVIDED, HOWEVER, that the failure to provide
prompt notice as provided herein will relieve the Indemnifying Party of its
obligations hereunder only to the extent that such failure prejudices the
Indemnifying Party hereunder. In case any such action shall be brought against
any party seeking indemnification and the Indemnified Person shall notify the
Indemnifying Party of the commencement thereof, the Indemnifying Party shall be
entitled to participate therein or, following the delivery by the Indemnifying
Party to the Indemnified Person of Indemnified Party's acknowledgment in writing
that the relevant Loss is an indemnified liability hereunder and that the
Indemnifying Party, in its good faith judgment, will be able to pay any award of
money damages against the Indemnified Person in connection with such action, to
assume the defense thereof, with legal counsel reasonably satisfactory to such
Indemnified Person and, after notice from the Indemnified Person to such
Indemnified Person of such election so to assume the defense thereof, the
Indemnifying Party shall not be liable to the party or parties seeking
indemnification hereunder for any legal expenses of other counsel or any other
expenses subsequently incurred by such party or parties in connection with the
defense thereof. The Indemnifying Party and the Indemnified Person agree to
cooperate fully with each other and their respective legal counsel in connection
with the defense, negotiation or settlement of any such action or asserted
liability. The Indemnified Person shall have the right to participate at his own
expense in the defense of such action or asserted liability. If the Indemnifying
Party assumes the defense of an action (a) no settlement or compromise thereof
may be effected (i) by the Indemnifying Party without the written consent of the
Indemnified Person (which consent shall not be unreasonably withheld or delayed)
unless (x) there is no finding or admission of
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any violation of law or any violation of the rights of any person by any
Indemnified Person and no adverse effect on any other claims that may be made
against any Indemnified Person and (y) all relief provided is paid or satisfied
in full by the Indemnifying Party or (ii) by the Indemnified Person without the
written consent of Indemnifying Party (which consent shall not be unreasonably
withheld or delayed) and (b) the Indemnified Person may subsequently assume the
defense of such action if a court of competent jurisdiction determines that the
Indemnifying Party is not vigorously defending such action and the Indemnifying
Party shall bear all costs and expenses incurred by the Indemnified Party in its
defense of such action, including without limitation, fees and expenses of legal
counsel. In no event shall the Indemnifying Party be liable for any settlement
effected without its written consent
9.4 PAYMENT. On each occasion that any Indemnified Person shall be
entitled to indemnification or reimbursement under this Section 9.1, the
Indemnifying Party shall, at each such time, promptly pay by wire transfer, to
the Indemnified Person the aggregate amount of such Loss. To the extent the
Indemnified Person is the Shareholder and/or Entrada and Sync makes a payment to
a third party or incurs defense costs subsequent to the Effective Date with
respect to a matter subject to indemnification hereunder, then the Loss payable
to the Shareholder shall equal the amount of such payment and costs, which the
Surviving Corporation shall pay to the Shareholder. To the extent that the
Indemnified Person is a Sync Indemnified Person, and Sync makes a payment to a
third party or incurs defense costs subsequent to the Effective Date with
respect to a matter subject to indemnification hereunder by the Shareholder,
then the Loss payable to Sync shall equal the amount of such payment and costs,
which the Shareholder shall pay to Sync. If any Indemnified Person shall be
entitled to indemnification under this Section 9.1, the Indemnifying Party shall
reimburse in cash the Indemnified Person's actual out-of-pocket expenses, if
any, arising as a result of defending against any such claim, action or
proceeding.
9.5 MINIMUM LIABILITY. Neither party shall have any liability to the other
under this Article IX unless such party's aggregate Losses exceed $250,000, in
which event the Indemnifying Party shall be liable only for all such Losses
above that amount. Neither party shall have any liability under this Article IX
in an amount greater that Sync's market capitalization as of the date of this
Agreement.
ARTICLE X
MISCELLANEOUS
10.1 SURVIVAL OF REPRESENTATIONS, WARRANTIES AND AGREEMENTS. The
representations, warranties, covenants and other agreements in this Agreement or
in any instrument delivered pursuant to this Agreement, including any rights
arising out of any breach of such representations, warranties, covenants and
other agreements, shall survive the Effective Time for a period of two (2)
years, except for (a) those covenants and agreements contained herein and
therein that by their terms apply or are to be performed in whole or in part
prior to or at the Effective Time, and (b) those representations concerning
Taxes, which will survive for the statute of limitations period applicable to
the payment of such taxes, and (c) those representations concerning matters
under or relating to any Environmental Laws, which will survive for the statute
of limitations period applicable to such matters.
10.2 FEES AND EXPENSES. Except as otherwise provided in this Agreement,
Entrada and Shareholder shall bear their own expenses and the expenses of their
Affiliates and Sync shall bear its own expenses and the expenses of its
Affiliates in connection with the preparation and negotiation of this Agreement
and the consummation of the transactions contemplated by this Agreement. Each of
Entrada. Shareholder and Sync shall bear the fees and expenses of any broker or
finder retained by such party or parties and their respective Affiliates
(including, in the case of Sync, Merger Co) in connection with the transactions
contemplated herein.
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10.3 GOVERNING LAW. This Agreement shall be construed under and governed
by the laws of the State of California applicable to contracts made and to be
performed therein.
10.4 AMENDMENT. This Agreement may not be amended, modified or
supplemented except upon the execution and delivery of a written agreement
executed by Sync, the Shareholder.
10.5 NO ASSIGNMENT. Neither this Agreement nor any of the rights,
interests or obligations hereunder shall be assigned by any party hereto without
the prior written consent of the Shareholder, in the case of assignment by Sync,
and Sync, in the case of any assignment by the Shareholder. This Agreement will
be binding upon, inure to the benefit of and be enforceable by the parties and
their respective successors and assigns.
10.6 WAIVER. Any of the terms or conditions of this Agreement which may be
lawfully waived may be waived in writing at any time by each party which is
entitled to the benefits thereof. Any waiver of any of the provisions of this
Agreement by any party hereto shall be binding only if set forth in an
instrument in writing signed on behalf of such party. No failure to enforce any
provision of this Agreement shall be deemed to or shall constitute a waiver of
such provision and no waiver of any of the provisions of this Agreement shall be
deemed to or shall constitute a waiver of any other provision hereof (whether or
not similar) nor shall such waiver constitute a continuing waiver.
10.7 NOTICES. Any notice, demand, or communication required or permitted
to be given by any provision of this Agreement shall be deemed to have been
sufficiently given or served for all purposes if (a) personally delivered, (b)
mailed by registered or certified first-class mail, prepaid with return receipt
requested, (c) sent by a nationally recognized overnight courier service, to the
recipient at the address below indicated or (d) delivered by facsimile which is
confirmed in writing by sending a copy of such facsimile to the recipient
thereof pursuant to clause (a) or (c) above:
If to Sync:
Sync Research, Inc.
12 Morgan
Irvine, California 92618
Attn: William K. Guerry, President
(949) 460-4481 (telecopier)
(949) 588-2070 (telephone)
With copies to:
Orrick, Harrington & Sutcliffe, LLP
777 South Figueroa Street, Suite 3200
Los Angeles, California 90017
Attn: Blase P. Dillingham, Esq.
(213) 612-2499 (telecopier)
(213) 629-2020 (telephone)
Venture Law Group
2775 and 2800 Sand Hill Road
Menlo Park, California 94025
Attn: Mark Medearies, Esq.
(650) 233-8386 (telecopier)
(650) 854-4488 (telephone)
If to the Shareholder:
Osicom Technologies, Inc.
2800 28th Street
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Suite 100
Santa Monica, California 90405
Attn: President
(310) 581-4032 (telecopier)
(310) 581-4030 (telephone)
With copies to:
Greenbaum, Rowe, Smith, Ravin, Davis & Himmel, LLP
Metro Corporate Campus I
99 Wood Avenue South
P.O. Box 5600
Woodbridge, New Jersey 07095
Attn: W. Raymond Felton
(732) 549-1881 (telecopier)
(732) 549-5600 (telephone)
or to such other address as any party hereto may, from time to time, designate
in a written notice given in like manner.
Except as otherwise provided herein, any notice under this Agreement will be
deemed to have been given (x) on the date such notice is personally delivered or
delivered by facsimile, (y) four days after the date of mailing if sent by
certified or registered mail or (z) the next succeeding business day after the
date such notice is delivered to the overnight courier service if sent by
overnight courier; provided that in each case notices received after 4:00 p.m.
(local time of the recipient) shall be deemed to have been duly given on the
next business day.
10.8 COMPLETE AGREEMENT. This Agreement and the other documents and
writings referred to herein or delivered pursuant hereto contain the entire
understanding of the parties with respect to the subject matter hereof and
thereof and supersede all prior agreements and understandings, both written and
oral, between the parties with respect to the subject matter hereof and thereof.
This Agreement shall be binding upon and shall inure to the benefit of the
parties hereto and their respective successors and permitted assigns.
10.9 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement and
each of which shall be deemed an original.
10.10 PUBLICITY. Sync and the Shareholder will consult with each other and
will mutually agree upon any publication or press release of any nature with
respect to this Agreement or the transactions contemplated hereby and shall not
issue any such publication or press release prior to such consultation and
agreement except as may be required by applicable law or by obligations pursuant
to any listing agreement with any securities exchange or any securities exchange
regulation, in which case the party proposing to issue such publication or press
release shall make all reasonable efforts to consult in good faith with the
other party or parties before issuing any such publication or press release and
shall provide a copy thereof to the other party or parties prior to such
issuance.
10.11 HEADINGS. The headings contained in this Agreement are for reference
only and shall not affect in any way the meaning or interpretation of this
Agreement.
10.12 SEVERABILITY. Any provision of this Agreement which is invalid,
illegal or unenforceable in any jurisdiction shall, as to that jurisdiction, be
ineffective to the extent of such invalidity, illegality or unenforceability,
without affecting in any way the remaining provisions hereof in such
jurisdiction or rendering that or any other provision of this Agreement invalid,
illegal or unenforceable in any other jurisdiction.
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10.13 THIRD PARTIES. Except as specifically set forth or referred to
herein, nothing herein expressed or implied is intended or shall be construed to
confer upon or give to any person or corporation, other than the parties hereto
and their permitted successors or assigns, any rights or remedies under or by
reason of this Agreement.
10.14 CONSENT TO JURISDICTION AND SERVICE OF PROCESS. THE PARTIES HERETO
HEREBY CONSENT TO THE JURISDICTION OF ANY STATE OR FEDERAL COURT LOCATED WITHIN
THE AREA ENCOMPASSED BY THE SOUTHERN DISTRICT OF THE STATE OF CALIFORNIA AND
IRREVOCABLY AGREE THAT ALL ACTIONS OR PROCEEDINGS ARISING OUT OF OR RELATING TO
THIS AGREEMENT SHALL BE LITIGATED IN SUCH COURTS. THE PARTIES HERETO EACH ACCEPT
FOR ITSELF AND HIMSELF, AS THE CASE MAY BE, AND IN CONNECTION WITH ITS OR HIS,
AS THE CASE MAY BE, RESPECTIVE PROPERTIES, GENERALLY AND UNCONDITIONALLY, THE
EXCLUSIVE JURISDICTION AND VENUE OF THE AFORESAID COURTS AND WAIVE ANY DEFENSE
OF FORUM NON CONVENIENS, AND IRREVOCABLY AGREE TO BE BOUND BY ANY NON-APPEALABLE
JUDGMENT RENDERED THEREBY IN CONNECTION WITH THIS AGREEMENT. THE SHAREHOLDER
DESIGNATES LIZ BIANCHI AT HER BUSINESS ADDRESS, 9990 MESA RIM ROAD, SAN DIEGO,
CALIFORNIA 92121 AND SUCH OTHER PERSON AS MAY HEREINAFTER BE SELECTED BY THE
SHAREHOLDER WHO IRREVOCABLY AGREES IN WRITING TO SO SERVE AS AGENT FOR THE
SHAREHOLDER TO RECEIVE ALL PROCESS IN ANY SUCH PROCEEDINGS IN ANY SUCH COURT,
SUCH SERVICE BEING HEREBY ACKNOWLEDGED BY THE PARTIES HERETO TO BE EFFECTIVE AND
BINDING SERVICE IN EVERY RESPECT. SYNC DESIGNATES WILLIAM K. GUERRY AT HIS
BUSINESS ADDRESS SET FORTH IN SECTION 10.7 AND SUCH OTHER PERSON AS MAY
HEREINAFTER BE SELECTED BY SYNC WHO IRREVOCABLY AGREES IN WRITING TO SO SERVE AS
AGENT FOR SYNC TO RECEIVE ALL PROCESS IN ANY SUCH PROCEEDINGS IN ANY SUCH COURT,
SUCH SERVICE BEING HEREBY ACKNOWLEDGED BY THE PARTIES HERETO TO BE EFFECTIVE AND
BINDING SERVICE IN EVERY RESPECT. A COPY OF ANY SUCH PROCESS SO SERVED SHALL BE
MAILED BY REGISTERED MAIL TO THE PARTIES HERETO, AS PROVIDED HEREIN, EXCEPT THAT
UNLESS OTHERWISE PROVIDED BY APPLICABLE LAW, ANY FAILURE TO MAIL SUCH COPY SHALL
NOT AFFECT THE VALIDITY OF SERVICE OF PROCESS.
10.15 WAIVER OF JURY TRIAL. TO THE FULLEST EXTENT PERMITTED BY LAW, THE
PARTIES HERETO HEREBY WAIVE THEIR RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM
OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF THIS AGREEMENT OR ANY DEALINGS
BETWEEN THEM RELATING TO THE SUBJECT MATTER OF THIS TRANSACTION. THE PARTIES
HERETO ALSO WAIVE ANY BOND OR SURETY OR SECURITY UPON SUCH BOND WHICH MIGHT, BUT
FOR THIS WAIVER, BE REQUIRED OF ANY OF THE OTHER PARTIES. THE SCOPE OF THIS
WAIVER IS INTENDED TO BE ALL-ENCOMPASSING OF ANY AND ALL DISPUTES THAT MAY BE
FILED IN ANY COURT AND THAT RELATE TO THE SUBJECT MATTER OF THIS AGREEMENT,
INCLUDING WITHOUT LIMITATION, CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY
CLAIMS, AND ALL OTHER COMMON LAW AND STATUTORY CLAIMS. THE PARTIES HERETO
ACKNOWLEDGE THAT THIS WAIVER IS A MATERIAL INDUCEMENT TO ENTER INTO A BUSINESS
RELATIONSHIP, THAT EACH HAS ALREADY RELIED ON THE WAIVER IN ENTERING INTO THIS
AGREEMENT AND THAT EACH WILL CONTINUE TO RELY ON THE WAIVER IN THEIR RELATED
FUTURE DEALINGS. THE PARTIES HERETO FURTHER WARRANT AND REPRESENT THAT EACH HAS
REVIEWED THIS WAIVER WITH ITS OR HIS, AS THE CASE MAY BE, LEGAL COUNSEL, AND
THAT EACH KNOWINGLY AND VOLUNTARILY WAIVES ITS OR HIS, AS THE CASE MAY BE, JURY
TRIAL RIGHTS FOLLOWING CONSULTATION WITH LEGAL COUNSEL. THIS
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WAIVER IS IRREVOCABLE, MEANING THAT IT MAY NOT BE MODIFIED EITHER ORALLY OR IN
WRITING, AND THE WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS, RENEWALS,
SUPPLEMENTS OR MODIFICATIONS TO THIS AGREEMENT OR TO ANY OTHER DOCUMENTS OR
AGREEMENTS RELATING TO THE TRANSACTIONS CONTEMPLATED HEREBY. IN THE EVENT OF
LITIGATION, THIS AGREEMENT MAY BE FILED AS A WRITTEN CONSENT TO A TRIAL BY THE
COURT.
10.16 DEFINITIONS. As used in this Agreement:
"AFFILIATE" of a person means a person that, directly or indirectly, through
one or more intermediaries, controls, is controlled by, or is under common
control with, the first mentioned person;
"BEST KNOWLEDGE" means the knowledge of the Shareholder's or Sync's, as the
case may be, officers, as such knowledge has been obtained in the normal course
of its business or in connection with the preparation of the Disclosure Schedule
and the furnishing of information to Sync or the Shareholder as contemplated by
this agreement, after having made a reasonable investigation of the accuracy of
the representations and warranties made by the Shareholder or Sync in this
Agreement or in any document, certificate or other writing furnished by Entrada
or Sync to the other pursuant hereto or in connection therewith.
"MATERIAL ADVERSE EFFECT" means, with respect to any entity, to the extent
not reflected on such entity's Balance Sheet, any liability, obligation,
impairment, restriction, lien, cost, expense, loss, compensation, payment,
reimbursement, damage, judgment or settlement to, of, by or on the business
(including on assets that has such effect on the business), operations, cash
flow, property, assets, prospects or condition (financial or otherwise) of such
entity and its Subsidiaries taken as a whole in the amount of $250,000 or more
for an individual occurrence or $500,000 or more in the aggregate for multiple
occurrences, arising outside the ordinary course of business. "Material Adverse
Effect" includes, without limitation, any effect that impairs the ability of any
of the parties hereto to consummate any transaction contemplated hereby.
"PERMITTED LIENS" means (a) any mechanic's, materialman's or other liens
arising by operation of law in the ordinary course of business consistent with
past practice, (b) liens for Taxes, assessments and other governmental charges
not yet due and payable or which the taxpayer is contesting in good faith
through appropriate proceedings and for which any required reserves have been
established, (c) purchase money liens and liens securing rental payments under
capital lease arrangements, (d) liens arising as a matter of law in the ordinary
course of business, provided that the obligations secured by such liens are not
delinquent or are being contested in good faith, and (e) Encumbrances which,
individually and in the aggregate, do not materially impair the current use or
continued use (in the same manner as they are being used on the date hereof) of
the asset to which they attach.
"SUBSIDIARY" when used with respect to any party means any corporation or
other organization, whether incorporated or unincorporated, of which such party
or any other Subsidiary of such party is a general partner (excluding
partnerships, the general partnership interests of which held by such party or
any Subsidiary of such party do not have a majority of the voting interests in
such partnership) or at least a majority of the securities or other interests of
which having by their terms ordinary voting power to elect a majority of the
Board of Directors or others performing similar functions with respect to such
corporation or other organization is directly or indirectly owned or controlled
by such party or by any one or more of its Subsidiaries, or by such party and
one or more of its Subsidiaries.
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IN WITNESS WHEREOF, Sync and the Shareholder has caused this Agreement to be
executed by its duly authorized officer, in both cases as of the day and year
first above written.
SYNC RESEARCH, INC., a Delaware
Corporation
By: /s/ WILLIAM K. GUERRY
Name: William K. Guerry
Title: Chief Executive Officer
OSICOM TECHNOLOGIES, INC. a New Jersey
corporation
By: /s/ CHRISTOPHER E. SUE
Name: Christopher E. Sue
Title: Vice President of Finance
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ANNEX B
OPINION OF FINANCIAL ADVISOR TO SYNC
[letterhead of Alliant Partners]
April 10, 2000
Board of Directors
Sync Research, Inc.
12 Morgan
Irvine, CA 92618
Gentlemen:
You have requested our opinion as to the fairness, from a financial point of
view, to the shareholders of Sync Research, Inc. ("Sync" or the "Company") in
connection with the transactions contemplated by the Agreement and Plan of
Merger (the "Agreement") dated April 10, 2000 by and among
1. Sync Research, Inc. ("Sync"), a Delaware corporation
2. Osicom Technologies, Inc. ("Parent"), a New Jersey corporation
3. Osicom Technologies, Inc., doing business as Entrada Networks ("Entrada"
or "Entrada"), a Delaware Corporation in which reside substantially all
of the assets of the Network Access division of Osicom Technologies Inc.
New Jersey
4. a wholly-owned subsidiary of Sync Research, Inc. (yet to be created),
formed for the purpose of this transaction
and the issuance of common stock, par value $0.001, of Sync (the "Shares")
pursuant thereto. The total consideration to be paid to Parent for Entrada is
equal to the number of shares of Sync Common Stock outstanding at the time of
closing, to be issued at closing. As of April 10, 2000, that number was
3,531,007. The transactions described above are collectively referred to herein
as the "Transaction".
Alliant Partners, as part of its investment banking business, is regularly
engaged in the valuation of businesses and their securities in connection with
mergers and acquisitions and corporate partnering transactions. We have acted as
financial advisor to Sync in connection with the Transaction and will receive a
fee for our services, including rendering this opinion, a significant portion of
which is contingent upon the consummation of the Transaction.
In arriving at our opinion, we have reviewed the Agreement and all of the
Exhibits and schedules, and have reviewed financial, product and other
information that was furnished to us by Sync and Parent. We also have held
discussions with members of the senior management of Sync and Parent regarding
the historic and current business operations and future risks and prospects of
the Company, including their expectation for certain strategic benefits of the
transaction. As part of these discussions, we also reviewed other transactions
contemplated by the Company over the last twelve months. In addition, we have
compared certain financial and securities data, both historic and projected, of
Entrada with those of various other companies engaged in businesses we
considered comparable with
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securities which are traded in public markets, analyzed prices paid in certain
other similar business combinations, and conducted such other financial studies,
analyses and investigations as we deemed appropriate for purposes of this
opinion.
We have assumed, without independent verification, the accuracy,
completeness and fairness of all of the financial statements, product
information, marketing strategies and other information regarding Entrada that
has been provided to us by Parent and its representatives. We did not make any
independent evaluation of Entrada's assets or intellectual property, nor did we
review any of Parent's corporate records.
Based on the foregoing and such other factors as we deem relevant, we are of
the opinion, as of the date hereof, that the consideration to be paid by Sync in
connection with the Transaction is fair, from a financial point of view, to Sync
and its shareholders.
Sincerely Yours,
/s/ ALLIANT PARTNERS
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ANNEX C
BRING-DOWN OPINION OF FINANCIAL ADVISOR TO SYNC
[letterhead of Alliant Partners]
August 2, 2000
Board of Directors
Sync Research, Inc.
12 Morgan
Irvine, CA 92618
Gentlemen:
You have requested our updated opinion as to the fairness, from a financial
point of view, to the shareholders of Sync Research, Inc., a Delaware
corporation, ("Sync" or the "Company"), in connection with the transactions
contemplated by the Amended and Restated Agreement and Plan of Merger (the
"Agreement") dated August 2, 2000 by and between Sync and Osicom Technologies,
Inc., a New Jersey corporation, ("Parent") and the issuance of common stock, par
value $0.001, of Sync (the "Shares") pursuant thereto.
The total consideration to be paid to Parent for the stock of Parent's
wholly-owned subsidiary doing business as Entrada Networks ("Entrada") is equal
to the number of shares of Sync common stock outstanding at the time of closing,
to be issued at closing. As of July 31, 2000, consequent to the terms of Sync's
private placement financing of May 12, that number is 4,237,401.
As part of the Agreement, Parent agrees to contribute cash to Entrada at or
shortly prior to the closing in exchange for an additional 1,000,000 to
3,000,000 shares of Sync common stock. The price for these shares is based on
the average closing price per share of Sync's common stock as reported on NASDAQ
for the thirty trading days immediately preceding the closing with a minimum
price of $3.30 and a maximum price of $3.811.
The transactions described above are collectively referred to herein as the
"Transaction".
Alliant Partners, as part of its investment banking business, is regularly
engaged in the valuation of businesses and their securities in connection with
mergers and acquisitions and corporate partnering transactions. We have acted as
financial advisor to Sync in connection with the Transaction and will receive a
fee for our services, including rendering this opinion, a significant portion of
which is contingent upon the consummation of the Transaction.
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Sync Research, Inc. Page 2
Board of Directors August 2, 2000
In arriving at our opinion, we have reviewed the Agreement and all of the
Exhibits and schedules, as well as the agreements and details pertaining to
Sync's private placement financing on May 12, 2000. In addition, we have
reviewed financial, product and other information that was furnished to us by
Sync and Parent. We also have held discussions with members of the senior
management of Sync and Parent regarding the historic and current business
operations and future risks and prospects of the Company, including their
expectation for certain strategic benefits of the transaction. As part of these
discussions, we also reviewed other transactions contemplated by the Company
over the last twelve months. In addition, we have compared certain financial and
securities data, both historic and projected, of Entrada with those of various
other companies engaged in businesses we considered comparable with securities
which are traded in public markets, analyzed prices paid in certain other
similar business combinations, and conducted such other financial studies,
analyses and investigations as we deemed appropriate for purposes of this
opinion.
We have assumed, without independent verification, the accuracy,
completeness and fairness of all of the financial statements, product
information, marketing strategies and other information regarding Entrada that
has been provided to us by Parent and its representatives. We did not make any
independent evaluation of Entrada's assets or intellectual property, nor did we
review any of Parent's corporate records.
Based on the foregoing and such other factors as we deem relevant, we are of
the opinion, as of the date hereof, that the consideration to be paid by Sync in
connection with the Transaction remains fair, from a financial point of view, to
Sync and its shareholders.
Sincerely Yours,
/s/ ALLIANT PARTNERS
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The Transfer Agent is:
EQUISERVE, L.P.
<TABLE>
<S> <C> <C>
BY MAIL: BY OVERNIGHT COURIER BY HAND:
EquiServe, L.P. EquiServe, L.P. Securities Transfer & Reporting
Attn: Corporate Actions Attn: Corporate Actions Services, Inc.
P. O. Box 8029 150 Royall Street c/o EquiServe, L.P.
Boston, MA 02266-8029 Canton, MA 02021 100 William Street/Galleria
New York, NY 10038
BY FACSIMILE TRANSMISSIONS
(FOR ELIGIBLE INSTITUTIONS
ONLY) (781) 575-2232
CONFIRM BY TELEPHONE:
(800) 733-5001
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If you have any questions or need an additional copy of the proxy statement,
please contact
The Proxy Soliciation Agent:
MACKENZIE
PARTNERS, INC.
156 Fifth Avenue
New York, New York 10010
(212) 929-5500 (Call Collect)
or
CALL TOLL-FREE (800) 322-2885
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DETACH HERE
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF
SYNC RESEARCH INC.
2000 ANNUAL MEETING OF STOCKHOLDERS
The undersigned stockholder of Sync Research, Inc., a Delaware
corporation, hereby acknowledges receipt of the Notice of Annual Meeting of
Stockholders and Proxy Statement/Prospectus, each dated August 7, 2000, and
hereby appoints Gregorio Reyes and William K. Guerry or either of them,
proxies and attorneys-in-fact, with full power to each of substitution, on
behalf and in the name of the undersigned, to represent the undersigned at
the 2000 Annual Meeting of Stockholders of Sync Research, Inc. to be held on
August 30 at 10:00 a.m. local time, at the Newport Beach Marriott Suites,
500 Bayview Circle, Newport Beach, California, and at any adjournment or
postponement thereof, and to vote all shares of common stock which the
undersigned would be entitled to vote if then and there personally present,
on the matters set forth on the reverse side and, in their discretion, upon
such other matters that may properly come before the meeting and/or any
adjournment(s) or postponements thereof.
----------- -----------
SEE REVERSE SEE REVERSE
SIDE CONTINUED AND TO BE SIGNED ON REVERSE SIDE SIDE
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<PAGE>
DETACH HERE
/X/ Please mark votes as in this example.
THIS PROXY WILL BE VOTED AS DIRECTED OR, IF NO CONTRARY DIRECTION IS INDICATED,
WILL BE VOTED AS FOLLOWS: (1) FOR APPROVAL OF THE ISSUANCE OF SHARES OF THE
COMPANY'S COMMON STOCK UNDER THE MERGER AGREEMENT WITH OSICOM TECHNOLOGIES,
INC.; (2) FOR APPROVAL OF THE NAME CHANGE; (3) FOR THE ELECTION OF DIRECTORS;
(4) FOR APPROVAL OF THE AMENDMENT TO THE 1995 EMPLOYEE STOCK PURCHASE PLAN;
(5) FOR THE APPOINTMENT OF ERNST & YOUNG LLP AS INDEPENDENT AUDITORS, AND AS
SAID PROXIES DEEM ADVISABLE ON SUCH OTHER MATTERS AS MAY COME BEFORE THE
MEETING.
1. Proposal to authorize the For Against Abstain
issuance of the Company's
common stock under the / / / / / /
merger agreement with
Osicom Technologies, Inc.
2. Proposal to change the For Against Abstain
Company's name to
Entrada Networks, Inc. / / / / / /
3. Election of Directors.
Nominees: Gregorio Reyes, William K. Guerry, Charles A. Haggerty,
William J. Schroeder
FOR WITHHELD
ALL / / / / FROM ALL
NOMINEES NOMINEES
/ / ____________________________________________________________
For all nominees except as noted above
4. Proposal to amend the 1995 For Against Abstain
Employee Stock Purchase
Plan to increase the / / / / / /
number of shares reserved
for issuance under the
Plan by an additional
100,000 shares.
5. Proposal to ratify the For Against Abstain
appointment of Ernst &
Young LLP as the Company's / / / / / /
independent auditors for
the fiscal year ending
December 31, 2000.
MARK HERE FOR ADDRESS CHANGE AND NOTE AT LEFT / /
NOTE: This Proxy should be marked, dated, signed
by the stockholder(s) exactly as his or her name
appears hereon, and returned in the enclosed
envelope. Persons signing in a fiduciary
capacity should so indicate. If shares are held
by joint tenants or as community property, both
should sign.
Signature:_________________ Date:______ Signature:_________________ Date:______
