-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, U0Nheb7ih0gZXi809Yk799DfpVupqGBKxoljxm6Xh/gJ1uHkRPKJJfIP6M5As/Qi Ehsg1lYFnOUjqXHFt3dtSQ== 0000891618-02-001601.txt : 20020415 0000891618-02-001601.hdr.sgml : 20020415 ACCESSION NUMBER: 0000891618-02-001601 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 13 CONFORMED PERIOD OF REPORT: 20011231 FILED AS OF DATE: 20020401 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SYBASE INC CENTRAL INDEX KEY: 0000768262 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-PREPACKAGED SOFTWARE [7372] IRS NUMBER: 942951005 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-16493 FILM NUMBER: 02597461 BUSINESS ADDRESS: STREET 1: 6475 CHRISTIE AVE CITY: EMERYVILLE STATE: CA ZIP: 94608 BUSINESS PHONE: 5109223500 MAIL ADDRESS: STREET 1: 6475 CHRISTIE AVE STREET 2: 6475 CHRISTIE AVE CITY: EMERYVILLE STATE: CA ZIP: 94608 10-K 1 f79747e10-k.txt FORM 10-K - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 --------------------- FORM 10-K FOR ANNUAL AND TRANSITION REPORTS PURSUANT TO SECTIONS 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (Mark One) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 2001 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER: 0-19395 SYBASE, INC. (Exact name of registrant as Specified in its Charter) DELAWARE 94-2941005 (State or Other Jurisdiction of (I.R.S. Employer Incorporation or Organization) Identification No.)
5000 HACIENDA DRIVE, DUBLIN, CALIFORNIA 94568 (Address of principal executive offices and Zip Code) REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (925) 236-5000 SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: NONE SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: COMMON STOCK, $.001 PAR VALUE PREFERRED SHARE PURCHASE RIGHTS Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] The aggregate market value of the voting stock held by non-affiliates of the Registrant, based upon the closing sale price of the Common Stock on March 22, 2002, as reported on the New York Stock Exchange, was approximately $17.23. Shares of Common Stock held by each officer and director and by each person who owns 10% or more of the outstanding Common Stock have been excluded in that such persons may be deemed to be affiliates. This determination of affiliate status is not necessarily a conclusive determination for other purposes. As of March 22, 2002, Registrant had 98,742,437 shares of Common Stock outstanding. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- DOCUMENTS INCORPORATED BY REFERENCE
FORM 10-K PARTS DOCUMENT INCORPORATED BY REFERENCE - --------------- ---------------------------------- III Definitive Proxy Statement for the Annual Meeting of Stockholders to be held May 23, 2002 (to be filed within 120 days of Registrant's fiscal year ended December 31, 2001)
FORWARD-LOOKING STATEMENTS This annual report contains forward-looking statements that involve risk and uncertainties that could cause the actual results of Sybase, Inc. and its consolidated subsidiaries ("Sybase", the "Company," "we" or "us") to differ materially from those expressed or implied by such forward-looking statements. These risks include sales productivity, particularly in North America; possible disruptive effects of organizational changes; shifts in customer or market demand for our products and services; public perception of Sybase, our technology vision and future prospects; rapid technological changes; competitive factors; delays in scheduled product availability dates (which could result from various occurrences including development or testing difficulties, software errors, shortages in appropriately skilled software engineers and project management problems); interoperability of our products with other software products, risks inherent in completing the acquisition of other companies, the ability to integrate acquired companies into our business, and other risks detailed from time to time in our Securities and Exchange Commission filings. Expectations, forecasts, and projections that may be contained in this report are by nature forward-looking statements, and future results cannot be guaranteed. The words "anticipate," "believe," "estimate," "expect," "intend," "will," and similar expressions in this document, as they relate to Sybase and our management, may identify forward-looking statements. Such statements reflect the current views of our management with respect to future events and are subject to risks, uncertainties and assumptions. Forward-looking statements that were true at the time made may ultimately prove to be incorrect or false, or may vary materially from those described as anticipated, believed, estimated, intended or expected. We do not intend to update these forward-looking statements. PART I ITEM 1. BUSINESS Sybase is the enterprise infrastructure company that bridges heterogeneous technologies. We are one of the largest independent software companies in the world with an industry-leading Enterprise Portal (EP), mobile and wireless solutions, essential integration products, high performance database management systems, and solutions in such vertical markets as financial services, telecommunications, healthcare and the public sector. Sybase was founded and incorporated in California on November 15, 1984, and was re-incorporated in Delaware on July 1, 1991. Our business is organized into five principal operating divisions, two of which are majority owned subsidiaries. - Enterprise Solutions Division (ESD) products and solutions let enterprises integrate, move and manage very large amounts of data and applications across diverse computing environments. ESD also provides technical support and professional services required by businesses to develop and maintain operational systems, including e-Business infrastructures. - e-Business Division (eBD) integrates our core technology with emerging solutions to offer advanced e-Business technology. It is comprised of Sybase's flagship Enterprise Portal product, tools for personalization, globalization, integration, high security, plus Sybase's historical infrastructure expertise. eBD focuses on products from our former Internet Applications Division (IAD) and certain products formerly within ESD and New Era of Networks, Inc. (NEN), a wholly owned subsidiary which we acquired in April 2001. 1 - iAnywhere Solutions, Inc. (iAS) products and solutions extend enterprise systems to remote and wireless devices to enable e-Business and m-Business (mobile business) anywhere, anytime. iAS is a majority owned subsidiary that continues the business of our former Mobile and Embedded Computing (MEC) division. - Business Intelligence Division (BID) products and solutions let businesses consolidate and analyze large amounts of information from data warehouses and data marts to facilitate better decision making and gain a competitive edge in sales and marketing, customer satisfaction, trend and risk analysis, and other mission-critical areas. - Financial Fusion, Inc. (FFI) provides enterprise-class e-Finance solutions to the world's leading financial institutions, fusing applications and middleware on a single, integrated platform. FFI builds complete financial destinations for banking, and straight-through processing (STP) solutions for capital markets. All solutions run on the Financial Fusion Server(TM), a 100% Java based, multi-tier architecture, built to open standards. FFI is a majority owned subsidiary created to carry on the business of Home Financial Network, Inc. (HFN), which we acquired in January 2000, and to focus on certain products formerly within our NEN subsidiary. A summary of financial results for these divisions and subsidiaries is found in Note Ten to the Consolidated Financial Statements, Part II, Item 8, incorporated here by reference. CUSTOMERS Our customers are primarily Fortune 1000 companies in North America and their equivalents in other geographic regions. Our primary markets include financial services, insurance, telecommunications, healthcare, defense and government agencies. No single customer accounted for more than 10% of total revenues during 2001, 2000 or 1999. The following were among our customers during 2001: - One of the world's largest cable and wire manufacturers using Sybase's ENTERPRISE PORTAL to provide personalized information, single sign on, and specially tailored security to aggregate an e-commerce site, the company's Intranet, various standalone customer tools, and subscriber content. - A leading home improvement retailer using ADAPTIVE SERVER(R) ENTERPRISE to efficiently manage and share data, and reduce overall operating costs throughout an aggressive store expansion plan. - The UK's largest electricity supplier and second largest gas supplier using INDUSTRY WAREHOUSE STUDIO(TM) as the infrastructure for a sophisticated analytic data warehouse allowing implementation of targeted marketing programs that generated thousands of new customers a week. - A high-profile department within the U.S. military using SQL ANYWHERE(R) STUDIO to create a powerful and easy-to-use inventory application running on handheld devices -- saving $2,000 per mobile device and reducing inspection man hours by 50%. Our products are available on hardware platforms manufactured by Compaq, Hewlett-Packard, IBM, Sun Microsystems and others. We also make products that connect these platforms to other hardware platforms with large installed bases. Our products are also available for a wide range of operating systems including various UNIX environments, Windows, Windows NT, and Linux. A description of the principal products of each subsidiary and division follows: eBUSINESS DIVISION (eBD) Sybase(R) Enterprise Portal (EP) is an extensible portal environment that meets next-generation e-Business requirements, with powerful capabilities for extending the enterprise to trading partners and expanding its reach to mobile workers. Sybase(R) EAServer is a highly scalable, robust application server for e-portal and Internet business solutions. It provides best-of-class transaction and security management and high availability, enabling customers to support highly trafficked Web sites. 2 New Era of Networks(R) e-Business Integration Servers is a suite of high-powered, e-Business integration software designed to provide the brains and muscle needed to help businesses make the transition from "bricks to clicks", connecting core operational systems and Web-interfacing applications for seamless, effective integration. New Era of Networks(R) Process Server is an XML-based business process design tool and execution server. It helps companies integrate new and existing IT systems into a cohesive business process flow that speeds response times, improves efficiency and reduces operational costs. PowerDesigner(R) is the industry's first design tool with an enterprise-class repository that simplifies UML object modeling and data modeling, including Java and XML. ENTERPRISE SOLUTIONS DIVISION (ESD) Adaptive Server(R) Enterprise (ASE) is an information management system and portal-ready database designed to support the demanding requirements of both traditional and e-Business mission-critical applications. ASE delivers unique features for increased developer productivity, continuous availability of mission-critical applications and integration of disparate operational systems, thus enabling the efficient and rapid delivery of e-Business applications for the global economy. Replication Server(R) and Replication Agent(TM) allow remote sites to share data from a primary data site, and to automatically receive updated data from the primary site. Replication Server uses "store-and-forward asynchronous replication" that monitors and copies changes made at the primary data site, then automatically forwards those changes to all replicated sites. Sybase replication technology offers an innovative practical architecture for building cost-effective, high-performance, robust distributed systems, and supplies a flexible approach to information delivery that can rapidly adapt to changing business needs. PowerBuilder(R) is a high productivity application development tool targeted for the client/server and Web application markets. EnterpriseConnect(TM), DirectConnect(TM) and Open Server(TM) are among Sybase's core data access and integration products. These products allow users to use a single language to access varied types of data and applications (e.g., real-time data feeds, stored data) from multiple sources as if they were contained in a single database. Enterprise Event Broker enables custom applications to transmit information to other applications within the enterprise. Event Broker completely automates the capture and delivery of business events while giving customers the flexibility to define the mapping between events to better meet the needs of their enterprise requirements. iANYWHERE SOLUTIONS (iAS) SQL Anywhere(R) Studio with MobiLink and UltraLite(TM) is the industry-leading mobile database for use on workgroup servers, laptops and handheld devices, and supports applications used by single or multiple users. The UltraLite deployment option minimizes memory and system requirements for applications found in devices such as smart phones and intelligent appliances. SQL Anywhere Studio technology allows scalable bidirectional synchronization of e-Business information between enterprise systems and remote devices. This means that mobile users can send and receive critical data ensuring that up-to-date information is always available at their fingertips and at the head office. iAnywhere(TM) Wireless Server is a scalable and reliable wireless application server that provides data synchronization, messaging, content and session management to extend e-Business to wireless devices. It is also a gateway for secure wireless connectivity between IT and communications networks (such as cellular networks and packet radio networks). By providing "always available" access to corporate information even when a network connection is unavailable, the iAnywhere Wireless Server enables organizations to transform their business for the wireless revolution. 3 BUSINESS INTELLIGENCE DIVISION (BID) Adaptive Server(R) IQ Multiplex (IQ-M) presents a new generation of capabilities for e-Business intelligence and Web enabled data warehousing, allowing data access, query performance and data loading 10 to 100 times faster than traditional relational databases. Multiplexing capabilities allow this product to maintain high performance levels even with dramatic increases in the number of users and volume of data. IQ-M can compress even terabytes of data without the need for continuous, laborious tuning and maintenance. Industry Warehouse Studio(TM) (IWS) offers strategic, end-to-end business intelligence infrastructure, which encompasses data acquisition, data modeling, metadata management, data analysis, data storage and analytic applications. IWS offers prepackaged solutions that can be customized for a variety of industries such as retail banking, capital markets, insurance, healthcare and telecommunications. These solutions provide the basic framework that enables an organization to analyze customer behavior and its impact on the business. FINANCIAL FUSION, INC. (FFI) Financial Fusion(R) Consumer e-Finance Suite combines various components to create an integrated financial destination to accommodate consumer banking, wireless application support, bill presentment, payment, and transfer, content and account aggregation, one-to-one marketing and customer care. Financial Fusion(R) Business e-Finance Suite -- Micro Edition enables a full range of business banking and bill payment capabilities from a single point of access on a financial institution 's website. Micro Editon allows business customers to access account information, pay bills and access tax advice, business news and communicate with their financial institution. Financial Fusion Server(TM), UniversalOFX Edition allows financial institutions to leverage OFX protocol connectivity to access 401(k) accounts, income tax information, retail and commercial banking, and electronic trading and reporting within a robust, scalable architecture. Financial Fusion Server, UniversalOFX Edition connects millions of customers to their accounts by utilizing advanced Java technology and flexible message broker-based infrastructure. Fusion Powered STP solutions support the business buyer and the technology buyer, and provide robust, high availability/load balancing financial protocol exchange solutions and messaging solutions with out-of-the-box protocol support for FIX, FIXML, FpML, EMX, SWIFT, OMGEO, RIDT and GSTP to facilitate straight-through processing (STP). SWIFT for EAI is a robust solution and flexible SWIFT adapter that provides fast, real-time message transfer, reduced need for operator intervention, and dramatic improvement in connectivity. The set of format libraries supports ISO 15022, SWIFT 2001 standards (SWIFTGoldReady), NEN's e-Biz Integrator(TM) and IBM's MQSeries Integrator. WORLDWIDE SERVICES Technical Support. Our Customer Service and Support organization offers technical support for our entire family of products. We currently maintain regional support centers in North America, Europe, and Asia Pacific that can provide 24 X 7 technical services (i.e., 24 hours a day, seven days a week) in all time zones around the world. Our end users and partners have access to technical information sources and newsgroups on our support Web site, including a problem-solving library and certain software fixes that can be downloaded. End users generally can choose technical support programs that best suit their business needs. All of the following support programs are priced on a per-product basis and include updates and new version releases during the support period: - Basic Support is generally geared toward smaller local enterprises, and includes business-day support for up to two customer support contacts. 4 - Extended Support is the minimum support level recommended for Sybase database products, and includes 24 X 7 coverage for up to four customer support contacts. - Enterprise Support offers personalized high availability support for companies with mission-critical projects. Services includes 24 X 7 coverage and other specialized options. - Developer Support programs apply to designated workplace level products, and are geared toward developers. Under these programs, updates and new version releases are not included and must be purchased separately. Each of our major divisions and subsidiaries also offers a variety of support services to its partners, including value added resellers (VARs), systems integrators (SIs), original equipment manufacturers (OEMs) and independent software developers. Consulting. The Sybase Professional Services (SPS) organization offers customers comprehensive consulting, training and integration services designed to optimize their business solutions using both Sybase and non-Sybase products. Service offerings include assistance with data and system migration, custom application design and development, implementation, performance improvement, knowledge transfer and system administration. SPS also provides extensive SQL and Sybase product training. Education. We provide a broad education curriculum allowing customers and partners to increase their proficiency in our products. Basic and advanced courses are offered at Sybase education centers throughout North America, South America, Europe and Asia Pacific (including Australia and New Zealand). Specially tailored customer classes and self-paced training are also available. A number of our distributors and authorized education providers also provide training in our products. SALES AND DISTRIBUTION Licensing Model. Consistent with software industry practice, we do not sell or transfer title to our software products to our customers. Instead, customers generally purchase non-exclusive, nontransferable perpetual licenses in exchange for a fee that varies depending on the mix of products and services, the number and type of users, the number of servers, and the type of operating system. License fees range from several hundred dollars for single user desktop products to several million dollars for solutions that can support hundreds or thousands of users. We also license many of our products for use in connection with customer applications on the Internet. Our products and services are offered in a wide variety of configurations depending on each customer's needs and hardware environment. Distribution Method. All Sybase products and services generally are sold through direct sales organizations and indirect sales channels. "Indirect channels" include VARs, SIs, OEMs, international distributors and other resellers. International Business. In 2001, forty-two percent (42%) of the Company's total revenues were from international operations, with European operations accounting for 27% of total revenues, and intercontinental operations (principally Asia Pacific (including Japan) and South America) accounting for 15% of total revenues. Most of our international sales are made by foreign subsidiaries. However, certain sales are made in international markets from the United States. We also license our products through distributors in those regions. A summary of our geographical revenues is set forth in "Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) -- Geographical Revenues", Part II, Item 7, and Note Ten to the Consolidated Financial Statements, Part II, Item 8, incorporated here by reference. For a discussion of the risks associated with our foreign operations, see "MD&A -- Future Operating Results -- International Operations," Part II, Item 7, incorporated here by reference. INTELLECTUAL PROPERTY RIGHTS We rely on a combination of trade secret, copyright, patent and trademark laws, as well as contractual terms, to protect our intellectual property rights. As of March 22, 2002, we had 57 issued patents that expire in approximately 17 years from the date they are issued. These patents cover various aspects of our technology. 5 We believe that our patents and other intellectual property rights have value, but no single patent is essential to Sybase as a whole. Additionally, any of our proprietary rights could be challenged, invalidated or circumvented, or may not provide significant competitive advantage. For a discussion of additional risks associated with our intellectual property, see "MD&A -- Future Operating Results -- Intellectual Property," Part II, Item 7, incorporated here by reference. RESEARCH AND DEVELOPMENT Since inception, we have made substantial investments in research and product development. We believe that timely development of new products and enhancements to our existing products is essential to maintaining a strong position in our market. During 2001, we invested $125.4 million, or 14% of our total revenue in research and development. We intend to continue to invest heavily in these areas. However, future operations could be affected if we fail to timely enhance existing products or introduce new products to meet customer demands. For a further discussion of the risks associated with product development, see "MD&A -- Future Operating Results -- Product Development," Part II, Item 7, incorporated here by reference. As is common in the software industry, our backlog is typically small and is not material to an understanding of our business. COMPETITION The market for our products and services is fast-paced, extremely competitive, and is marked by dynamic customer demands, short product life cycles, and the rapid emergence of the Internet marketplace. For a discussion of the risks associated with competition, see "MD&A -- Future Operating Results -- Competition," Part II, Item 7, incorporated here by reference. EMPLOYEES As of March 22, 2002, Sybase and its subsidiaries had 4,639 employees. Information regarding our executive officers is included in "Executive Officers of the Registrant," at the end of Part I of this Report. ITEM 2. PROPERTIES In January 2002, Sybase moved its is headquarters from Emeryville, California to Dublin, California where we lease administrative and product development facilities consisting of approximately 406,000 square feet. During 2001, we leased approximately 446,000 square feet in Emeryville. The leases for our Dublin facilities are due to expire in 2017 and have two five-year renewal options under the lease, generally at the fair market value. For a further discussion regarding the Dublin lease, see Note Six to the Consolidated Financial Statements, Part II, Item 8, incorporated here by reference. We continue to maintain an engineering center in Milpitas, California, where we lease approximately 10,350 square feet of office space through 2003. We also maintain engineering centers in Boulder, Colorado; Paris, France; Waterloo, Canada; Beijing, China; and Singapore. The North American engineering centers focus on product development, and the Singapore and Beijing facilities focus primarily on product localization and development relating to our Asian markets. As of December 31, 2001, our field operations, professional service organizations and subsidiaries occupied leased facilities in approximately 88 locations throughout North America, South America, Europe and Asia (including Australia and New Zealand), aggregating approximately 1.42 million square feet. In 1999, we sold a building in Concord, Massachusetts consisting of approximately 44,600 square feet. During that year, we also completed a sale/leaseback transaction and executed a five-year lease extension on two other buildings in Concord. The leases for all three buildings expire in June 2006. In 1999, we sold a building consisting of approximately 10,500 square feet located in Maidenhead, England. We continue to lease additional premises in various locations. 6 ITEM 3. LEGAL PROCEEDINGS The information required by this item is incorporated by reference to Note Twelve to the Consolidated Financial Statements, Part II, Item 8. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matters were submitted to a stockholder vote in the quarter ended December 31, 2001. EXECUTIVE OFFICERS OF THE REGISTRANT The executive officers of the Company as of March 22, 2002 are: JOHN S. CHEN Chairman, Chief Executive Officer and President Age 46 Mr. Chen has served Sybase in his present capacity since November 1998. From February through November 1998, he served as co-Chief Executive Officer. Mr Chen joined Sybase in August 1997 as Chief Operating Officer and served in that capacity until February 1998. From March 1995 to July 1997, Mr. Chen was President of the Open Enterprise Computing Division of Siemens Nixdorf, a computer and electronics company, and Chief Executive Officer and Chairman of Siemens Pyramid, a subsidiary of Siemens Nixdorf. MARTY BEARD Vice President Corporate Development Age 39 Mr. Beard has served in his present capacity since August 2000. Before joining Sybase, Mr. Beard was Vice President of Oracle Online, a division of Oracle Corporation, a database software company, from June 1999 through July 2000. Prior to that he served as Senior Director, Mid-Market Business Solutions for Oracle beginning in July 1997. From June 1993 through June 1997, Mr. Beard was Staff Director, Corporate Strategy and Development for Pacific Telesis Group, a telecommunications company. DANIEL R. CARL Vice President and General Counsel Age 49 Mr. Carl has served in his present capacity since April 1999. Immediately prior to that, he served as Director of European Legal Affairs beginning in January 1997. Mr. Carl has been a Vice President of Sybase since May 1996, and served as Associate General Counsel from 1992 to April 1999. PAMELA J. GEORGE Sr. Vice President Corporate Marketing Age 56 Ms. George has served in her present capacity since August 2001, and immediately prior to that served as Vice President, Corporate Marketing beginning in April 1999. Prior to that, she was Vice President of Corporate Communications at Maxager Technology, a software company, starting in December 1997. MARTIN J. HEALY Vice President and Corporate Controller Age 39 Mr. Healy has served in his present capacity since January 1999. Between January 1997 and January 1999, he served as Vice President, Intercontinental Operations. Mr. Healy was Director of Finance, Asia (excluding Japan) from January 1994 to December 1997, and prior to that held various positions within the Company's finance organization. Before Joining Sybase in 1989, Mr. Healy was Financial Reporting Manager at WordStar International. BILLY HO Sr. Vice President & GM e-Business Division Age 45 Mr. Ho has served in his present capacity since October 2001. Prior to that, he held the position of Senior Vice President of Product Development and Marketing, e-Business Division from July 2001 to October 2001. Before that, he held the position of Vice President of Product Development, Enterprise Solutions Division, from October 1998 to July 2001. Mr. Ho joined Sybase in 1997 as Director of Engineering. 7 ERIC L. MILES Sr. Vice President & GM Business Intelligence Division Age 55 Mr. Miles has served in his present capacity since December 1998. Between December 1997, when he joined Sybase, and December 1998, he was Senior Vice President, Product Operations. From November 1995 until he joined Sybase, Mr. Miles served as Vice President, Product Development at Informix Corporation, a database software company. RICHARD J. MOORE Sr. Vice President & GM v-Business Group Age 49 Mr. Moore has served in his present capacity since July 2001. Before joining Sybase, he served as co-CEO of Cygent, Inc., a San Francisco based telecommunications company, from November 2000 to March 2001, and was Cygent's Senior Vice President of Worldwide Sales from December 1999 to October 2001. From December 1998 to December 1999, Mr. Moore served as Executive Vice President of Worldwide Sales for DataCore Software Corp., a storage area networking company. RAJ NATHAN Sr. Vice President & GM Enterprise Solutions Division Age 48 Dr. Nathan has served in his present capacity since December 2000. Joining Sybase in November 1997, he served as Senior Vice President, Corporate Program Office and later as Senior Vice President and General Manager of the Internet Applications Division until December 2000. From May through November 1997, he served as President and Chief Executive Officer of Siemens Pyramid, and held a number of executive positions with Siemens Pyramid prior to that. TERRY STEPIEN President iAnywhere Solutions, Inc. Age 43 Mr. Stepien has served in his present capacity since May 2000. Prior to that he had served as Senior Vice President and General Manager of Sybase's Mobile and Embedded Computing Division (MEC) since March 1999. From September 1998 to March 1999, he was Vice President and General Manager of MEC. From September 1996 to September 1998, he served as Vice President, Marketing for Database Products. Mr. Stepien was Vice President, Marketing for Workplace Database Products from February 1995 to September 1996. PIETER VAN DER VORST Sr. Vice President and Chief Financial Officer Age 47 Mr. Van der Vorst was promoted to his current position in March 2002. Prior to that, he held the title of Vice President and Chief Financial Officer starting in January 1999. Between November 1997 and January 1999, he served as Corporate Controller, and prior to that, he served as Vice President, Tax and Corporate Accounting beginning in April 1997. Mr. Van der Vorst has held various other positions since joining Sybase in 1991. NITA C. WHITE-IVY Vice President Worldwide Human Resources Age 55 Ms. White-Ivy has served in her present capacity since March 1998. Prior to that, she was a human resources consultant to Sybase beginning in January 1998. Before joining Sybase, she was with Siemens Pyramid, a computer and electronics company, serving as Vice President of Worldwide Human Resources from February 1994 to October 1997. 8 PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS Sybase, Inc. Common Stock, par value $.001, began trading on the New York Stock Exchange on May 22, 2001, under the symbol "SY." Prior to that, our stock traded on the NASDAQ National Market System under the symbol "SYBS." Following is the range of low and high closing prices for our stock as reported on the New York Stock Exchange and NASDAQ for the quarters indicated.
HIGH LOW ------ ------ Fiscal 2000 Quarter ended March 31, 2000................................ $29.75 $16.50 Quarter ended June 30, 2000................................. $24.94 $18.25 Quarter ended September 30, 2000............................ $28.50 $21.13 Quarter ended December 31, 2000............................. $24.31 $17.56 Fiscal 2001 Quarter ended March 31, 2001................................ $25.88 $15.00 Quarter ended June 30, 2001................................. $18.00 $12.94 Quarter ended September 30, 2001............................ $16.81 $ 8.58 Quarter ended December 31, 2001............................. $17.13 $ 9.05
We have never paid cash dividends on our capital stock, and we do not anticipate doing so in the foreseeable future. The closing sale price of our stock on the New York Stock Exchange on March 22, 2002, was $17.23. The number of stockholders of record on that date was 1,663. In April 2001, we acquired all of the issued and outstanding common stock of NEN in exchange for approximately 14,289,957 shares of our Common Stock. For further discussion of this acquisition, see Note Eleven to the Consolidated Financial Statements, Part II, Item 8, incorporated here by reference. On January 20, 2000, we issued 7,817,471 shares of our Common Stock to the former shareholders of HFN in exchange for all of the outstanding common stock of HFN. The resale of our Common Stock issued in connection with this merger transaction was registered under the Act. For further discussion of this acquisition, see Note Eleven to the Consolidated Financial Statements, Part II, Item 8, incorporated here by reference. 9 ITEM 6. SELECTED FINANCIAL DATA
2001 2000 1999 1998 1997 -------- -------- -------- -------- -------- (IN THOUSANDS, EXCEPT PER SHARE DATA) CONSOLIDATED STATEMENTS OF OPERATIONS DATA Revenues: License fees.......................... $389,038 $468,501 $421,645 $421,454 $471,036 Services.............................. 537,048 491,957 449,988 446,015 432,901 -------- -------- -------- -------- -------- Total revenues.......................... 926,086 960,458 871,633 867,469 903,937 Costs and expenses: Cost of license fees.................. 45,695 45,120 46,241 37,573 31,356 Cost of services...................... 238,942 245,837 217,053 235,574 248,625 Sales and marketing................... 331,237 345,149 310,774 377,774 457,441 Product development and engineering... 125,404 126,689 136,272 148,583 138,590 General and administrative............ 76,885 67,267 68,876 65,406 62,607 Amortization of goodwill and other purchased intangibles.............. 55,859 32,730 13,920 15,205 11,720 In-process research and development... 18,500 8,000 -- -- -- Stock compensation expense............ 1,334 -- -- -- -- Cost (reversal) of restructuring...... 48,751 (791) (8,528) 74,167 -- -------- -------- -------- -------- -------- Total costs and expenses................ 942,607 870,001 784,608 954,282 950,339 -------- -------- -------- -------- -------- Operating income (loss)................. (16,521) 90,457 87,025 (86,813) (46,402) Interest income and expense, net........ 17,529 17,035 13,773 7,748 5,646 Minority interest....................... (30) 94 -- -- -- -------- -------- -------- -------- -------- Income (loss) before income taxes....... 978 107,586 100,798 (79,065) (40,756) Provision for income taxes.............. 26,500 35,461 38,303 14,063 14,668 -------- -------- -------- -------- -------- Net income (loss)....................... $(25,522) $ 72,125 $ 62,495 $(93,128) $(55,424) ======== ======== ======== ======== ======== Basic net income (loss) per share....... $ (0.27) $ 0.82 $ 0.76 $ (1.15) $ (0.70) -------- -------- -------- -------- -------- Shares used in computing basic net income (loss) per share............... 94,592 87,711 81,817 80,893 78,794 ======== ======== ======== ======== ======== Diluted net income (loss) per share..... $ (0.27) $ 0.78 $ 0.74 $ (1.15) $ (0.70) -------- -------- -------- -------- -------- Shares used in computing diluted net income (loss) per share............... 94,592 92,150 84,156 80,893 78,794 ======== ======== ======== ======== ========
2001 2000 1999 1998 1997 ---------- -------- -------- -------- -------- (IN THOUSANDS) CONSOLIDATED BALANCE SHEET DATA Cash, cash equivalents and cash investments.......................... $ 343,160 $354,612 $352,899 $249,613 $246,137 Working capital........................ 108,571 157,486 127,229 84,179 67,510 Total assets........................... 1,133,242 915,040 737,335 696,604 781,625 Long-term obligations.................. 5,887 5,795 5,799 2,011 1,959 Stockholders' equity................... 716,519 490,752 336,110 301,072 371,515
10 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OVERVIEW We reported net loss of ($25.5) million for 2001, compared to net income of $72.1 million for 2000. Our decrease in profitability primarily resulted from a $34.4 million (4%) decrease in revenues; an increase of $33.6 million in amortization and in-process research and development primarily from our 2001 acquisition of New Era of Networks (NEN); and a $49.5 million increase in restructuring costs offset by a $9.0 million decrease in the provision for income taxes. The affect of these changes was partially offset by a decrease in certain operating expenses as a result of a company-wide restructuring program initiated in April 2001 in connection with our acquisition of NEN and after announcement that our first quarter and 2001 revenues would be below expectations (2001 Plan). The 2001 Plan, which was aimed at eliminating certain personnel, assets and facilities, aligning resources and streamlining Company costs, resulted in the elimination of approximately $115 million from our ongoing yearly cost structure. See Note Thirteen to the Consolidated Financial Statements, Part II, Item 8, incorporated here by reference. Despite the decline in profitability in 2001, our financial position remains strong. As of December 31, 2001, we had $343.2 million in cash, cash equivalents and cash investments, and stockholders' equity of $716.5 million. Days sales outstanding in accounts receivable was 71 days for the quarter ended December 31, 2001. We are organized into five separate business segments, two of which are majority owned subsidiaries, each focused on one of five key market segments -- Enterprise Solutions Division (ESD), e-Business Division (eBD), Business Intelligence Division (BID), iAnywhere Solutions, Inc. (iAS), formerly our Mobile and Embedded Computing division and Financial Fusion, Inc. (FFI). For a discussion of each of these segments, see "Business," Part I, Item I, and Note Ten to the Consolidated Financial Statements, Part II, Item 8, incorporated here by reference. We periodically evaluate our estimates including those relating to the allowance for doubtful accounts, capitalized software, investments, intangible assets, income taxes, restructuring, litigation and other contingencies. We base our estimates on historical experience and various other assumptions that we believed to be reasonable based on the specific circumstances, the results of which form the basis for making judgments about the carrying value of certain assets and liabilities that are not readily apparent from other sources. Actual results could differ from these estimates. CRITICAL ACCOUNTING POLICIES AND ESTIMATES We prepare our financial statements in conformity with U.S. generally accepted accounting principles. These accounting principals require management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements. Our management is also required to make certain judgments that affect the reported amounts of revenues and expenses during the reporting period. We periodically evaluate our estimates including those relating to revenue recognition, the allowance for doubtful accounts, capitalized software, investments, intangible assets, income taxes, restructuring, litigation and other contingencies. We base our estimates on historical experience and various other assumptions that we believe to be reasonable based on the specific circumstances, the results of which form the basis for making judgments about the carrying value of certain assets and liabilities that are not readily apparent from other sources. Actual results could differ from these estimates. We believe the following critical accounting policies impact the most significant judgments and estimates used in the preparation of our consolidated financial statements: - Revenue Recognition Revenue recognition rules for software companies are very complex. We follow very specific and detailed guidance in measuring revenue. Certain judgments, however, affect the application of our revenue policy. 11 We recognize revenue in accordance with Statement of Position (SOP) 97-2, "Software Revenue Recognition," as amended by SOP 98-4 and SOP 98-9, and in certain instances in accordance with SOP 81-1, "Accounting for Performance of Construction-Type and Certain Production-Type Contracts." We license software under non-cancelable license agreements. License fees revenues are recognized when a non-cancelable license agreement is in force, the product has been shipped, the license fee is fixed or determinable, and collection is reasonably assured. If the fee is not fixed or determinable, revenue is recognized as payments become due from the customer. In software arrangements that include rights to multiple software products and/or services, we allocate the total arrangement fee among each of the deliverables using the "residual" method, under which revenue allocated to undelivered elements is based on vendor-specific objective evidence of fair value of such undelivered elements, and the residual revenue is allocated to delivered elements. Fees from licenses sold together with consulting services are generally recognized upon shipment, provided the above criteria are met, payment of the license fees are not dependent upon the performance of the services, and the consulting services are not essential to the functionality of the licensed software. If the services are essential to the functionality of the software, or payment of license fees is dependent on performance of services, both the software license and consulting fees are recognized under the "percentage of completion" method of contract accounting. Under this method, management is required to estimate the number of hours needed to complete a particular project, and revenues and profits are recognized as the contract progresses to completion. We recognize sublicense fees as reported to us by our licensees. License fees revenue for certain application development and data access tools are recognized upon direct shipment to the end user or direct shipment to the reseller for the end user. If collection is not reasonably assured, revenue is recognized only when the fee is collected. Maintenance and support revenues are recognized ratably over the term of the related agreements, which in most cases is one year. Revenues from consulting services under time and materials contracts and for training are recognized as services are performed. Revenues from other contract services are generally recognized under the "percentage of completion" method of contract accounting described above. In order to apply the percentage of completion of method, management is required to estimate the number of hours needed to complete a particular project. As a result, recognized revenues and profits are subject to revisions as the contract progresses to completion. - Impairment of Goodwill and Intangible Assets Goodwill and intangible assets, which have generally resulted from our business combinations accounted for as purchases, are recorded at amortized cost. We periodically review the carrying amounts of these intangible assets for indications of impairment based on the operational performance of the acquired businesses and market conditions. If indications of impairment are present, we assess the value of the intangible assets using estimates of future undiscounted cash flows. During the fourth quarter of 2001, various restructuring activities as well as the overall economic conditions signaled an indication of impairment. We then analyzed the value of our various intangibles by comparing the carrying value of these assets to the undiscounted cash flows estimated to be generated by these assets. Based on this analysis there was no impairment during 2001. Future events could cause us to conclude that impairment indicators exist and that intangible assets associated with acquired businesses are impaired. Beginning in 2002, the method for assessing potential impairments of intangibles will change based on new accounting rules issued by the Financial Accounting Standards Board (FASB), and related implementation guidance. We estimate that these new rules will result in an impairment loss of approximately $150 million in the first quarter of 2002. This loss will be recognized as a cumulative effect of an accounting change. 12 - Allowance for Doubtful Accounts We maintain an allowance for doubtful accounts to reflect the expected non-collection of accounts receivable based on past collection history and specific risks identified in our portfolio of receivables. If the financial condition of our customers deteriorates resulting in an impairment of their ability to make payments, or if payments from customers are significantly delayed, additional allowances might be required. - Capitalized Software We capitalize certain software development costs after establishment of a product's technological feasibility. Such costs are then amortized over the estimated life of the related product. Periodically, we compare a product's unamortized capitalized cost to the product's net realizable value. To the extent unamortized capitalized cost exceeds net realizable value based on the product's estimated future gross revenues, reduced by the estimated future costs of completing and disposing of the product, the excess is written off. This analysis requires us to estimate future gross revenues associated with certain products, and the future costs of completing and disposing of certain products. If these estimates change, write-offs of capitalized software costs could result. - Income Taxes We use the asset and liability approach to account for income taxes. This methodology recognizes deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the carrying amounts and the tax base of assets and liabilities. We then record a valuation allowance to reduce deferred tax assets to an amount that likely will be realized. We consider future taxable income and ongoing prudent and feasible tax planning strategies in assessing the need for the valuation allowance. If we determined during any period that we could realize a larger net deferred tax asset than the recorded amount, we would adjust the deferred tax asset to increase income for the period. Conversely, if we determine that we would be unable to realize a portion of our recorded deferred tax asset, we would adjust the deferred tax asset to record a charge to income for the period. - Restructuring During 2001, we recorded significant accruals in connection with our restructuring program. These accruals included estimated costs to settle certain lease obligations, and were generally based on the analysis of independent real estate consultants. While we do not anticipate significant changes to these estimates, the actual costs may differ from the estimates. If we are unable to negotiate affordable termination fees or if rental rates continue to decrease in the markets where the properties are located, or it takes us longer then expected to find suitable sublease tenants, the actual costs could exceed our estimates. - Contingencies and Litigation We are subject to various proceedings, lawsuits and claims relating to product, technology, labor, shareholder and other matters. We are required to assess the likelihood of any adverse outcomes and the potential range of probable losses in these matters. The amount of loss accrual, if any, is determined after careful analysis of each matter, and is subject to adjustment if warranted by new developments or revised strategies. 13 RESULTS OF OPERATIONS REVENUES
2001 CHANGE 2000 CHANGE 1999 ------ ------ ------ ------ ------ (DOLLARS IN MILLIONS) License fees....................................... $389.0 (17%) $468.5 11% $421.6 Percentage of total revenues..................... 42% 49% 48% Services........................................... $537.1 9% $492.0 9% $450.0 Percentage of total revenues..................... 58% 51% 52% Total revenues..................................... $926.1 (4%) $960.5 10% $871.6
Total revenues for 2001 decreased 4 percent from total revenues in 2000 (which had increased 10 percent over 1999). The decrease in 2001 from 2000 was primarily due to a decline in license fees revenues as a result of a weaker economy, and partially offset by an increase in our technical support services revenues resulting from an overall increase in our installed base. This increase was partially attributable to our 2001 acquisition of NEN and its customer base. The increase in 2000 from 1999 was due to growth in both our license revenue and technical support revenue. License fees revenues in 2001 decreased 17 percent over 2000 license fees revenues (which had increased 11 percent over 1999). The decrease in 2001 was largely due to decreased sales of our enterprise database and enterprise application products. This resulted from a weakened economy in which customers delayed or canceled many infrastructure investments requiring significant dollars and resources. Existing Sybase products and products acquired through the acquisition of NEN were equally affected by this phenomenon. From a segment standpoint, enterprise database revenues were primarily captured by ESD, while enterprise application revenues were primarily captured by eBD. The increase in license fees revenues in 2000 was primarily due to increased sales of our ESD enterprise database, eBD enterprise application products, and iAS mobile database products. Services revenues (derived from technical support, education and professional services) grew 9 percent in 2001 over 2000 (which had increased 9 percent over 1999). The increase in 2001 was primarily due to a 19 percent increase in technical support revenues. Partially offsetting this increase was a 5 percent decrease in education and professional services revenues for 2001 compared to 2000. The decrease was partially due to the economic factors discussed above, and partly due to our 2001 Plan, which reduced professional services headcount to de-emphasize building future capacity, and to focus instead on current profitable engagements. The increase in services revenues during 2000 was attributable to a 10 percent increase in revenues from technical support and an 8 percent increase in professional services revenues. The increase in technical support revenues was primarily due to an increase in our installed base, and the increase in professional services which primarily resulted from our 2000 acquisition of HFN (now FFI). For a discussion of our services, see "Business -- Worldwide Services," Part I, Item 1, incorporated here by reference. As a percentage of total revenues, our services revenues increased to 58 percent in 2001 from 51 percent in 2000 and 52 percent in 1999. 14 GEOGRAPHICAL REVENUES
2001 CHANGE 2000 CHANGE 1999 ------ ------ ------ ------ ------ (DOLLARS IN MILLIONS) North America...................................... $537.5 (8)% $586.7 10% $531.5 Percentage of total revenues..................... 58% 61% 61% International: Europe........................................... $251.6 2% $247.8 7% $231.9 Percentage of total revenues.................. 27% 26% 27% Intercontinental................................... $137.0 9% $126.0 16% $108.2 Percentage of total revenues.................. 15% 13% 12% Total International................................ $388.6 4% $373.8 10% $340.1 Percentage of total revenues..................... 42% 39% 39% Total revenues..................................... $926.1 (4)% $960.5 10% $871.6
North America revenues (United States, Canada and Mexico) decreased 8 percent in 2001 from 2000 (which had increased 10 percent over 1999), primarily due to a 26 percent decline in license fees revenues and a 13 percent decline in professional services revenue. The decrease was partially offset by a 21 percent increase in technical support revenues. The decrease in North America revenues was largely the result of the economic factors discussed under "Revenues" above. The increase in North America revenues in 2000 was due primarily to an increase in license fees revenues from our enterprise database, enterprise application and mobile database products, and an overall increase in our professional services revenues (see discussion above). Total international revenues increased 4 percent in 2001 over 2000 (which had increased 10 percent over 1999), primarily due to a 17 percent increase in technical support revenues which more than offset a 4 percent decrease in license fees revenues. European revenues increased 2 percent in 2001 (which had increased 7 percent in 2000) primarily due to an 18 percent increase in technical services revenues which more than offset a 10 percent decrease in license fees revenues primarily attributable to decreased revenues from our enterprise database and mobile database products. The decrease in European license fees revenues was largely the result of the economic factors discussed under "Revenues," above. Intercontinental revenues (principally Asia Pacific and South America) increased 9 percent in 2001 due to a 6 percent increase in license fees revenues, primarily associated with our enterprise application and mobile database products, and a combined increase of 13 percent in services revenues. In 2000, Intercontinental revenues increased 16 percent due to an 18 percent increase in license fees revenues primarily from enterprise database, enterprise application and mobile database products. A 14 percent increase in Intercontinental services revenues was attributable to an increase in technical support revenues. In general, the economic conditions within the Intercontinental region have been significantly less robust than those in Europe and North America due to the severe recessionary conditions faced by many of the countries in the region which began in 1999. Our business in the region has seen steady growth since 1999 across virtually all product offerings and services. In Europe and the Intercontinental region, most revenues and expenses are denominated in local currencies. The effect of foreign currency exchange rate changes on revenues was not material in 2001, 2000, or 1999. Although we take into account changes in exchange rates over time in our pricing strategy, our business and results of operations could be materially and adversely affected by fluctuations in foreign currency exchange rates. Changes in foreign currency exchange rates, the strength of local economies, and the general volatility of software markets may result in a higher or lower proportion of international revenues as a percentage of total revenues in the future. For additional risks associated with currency fluctuation, see "Financial Risk Management -- Foreign Exchange Risk" and "Future Operating Results -- Euro Currency," below. 15 COST AND EXPENSES
2001 CHANGE 2000 CHANGE 1999 ------ ------ ------ ------ ------ (DOLLARS IN MILLIONS) Cost of license fees........................... $ 45.7 1% $ 45.1 (2)% $ 46.2 Percentage of license fees revenues.......... 12% 10% 11% Cost of services............................... $238.9 (3)% $245.8 13% $217.1 Percentage of services revenues.............. 44% 50% 48% Sales and marketing............................ $331.2 (4)% $345.1 11% $310.8 Percentage of total revenues................. 36% 36% 36% Product development and engineering............ $125.4 (1)% $126.7 (7)% $136.3 Percentage of total revenues................. 14% 13% 16% General and administrative..................... $ 76.9 14% $ 67.3 (2)% $ 68.9 Percentage of total revenues................. 8% 7% 8% Amortization of goodwill and other Purchased intangibles.................................. $ 55.9 71% $ 32.7 135% $ 13.9 Percentage of total revenues................. 6% 3% 2% In-process research and development............ $ 18.5 131% $ 8.0 * -- Percentage of total revenues................. 2% 1% -- Stock compensation expense..................... $ 1.3 * -- -- -- Percentage of total revenues................. * -- -- Cost (reversal) of restructuring............... $ 48.8 * $(0.8) * $(8.5) Percentage of total revenues................. 5% * (1)%
- --------------- * Not meaningful Cost of License Fees Cost of license fees consists primarily of product costs (media and documentation), amortization of capitalized software development costs and purchased technology, and third party royalty costs. The cost of license fees expense increased 1 percent in 2001 over 2000. In 2000, these costs decreased 2 percent from 1999. The 2001 increase was primarily due to the amortization of purchased technology acquired in the NEN transaction, partially offset by decreases in amortization of capitalized software costs and third party royalties. The 2000 decrease in cost of license fees was primarily due to decreased third party royalties which were partially offset by increases in amortization of capitalized software costs and the amortization of purchased technology acquired in the HFN transaction. Cost of license fees were 12 percent of license fees revenues in 2001, 10 percent in 2000, and 11 percent in 1999. Amortization of capitalized software costs was $17.8 million in 2001, $22.4 million in 2000, and $20.0 million in 1999. In 2001, the decrease in amortization of capitalized software costs was primarily due to certain eBD and ESD products that became fully amortized at the end of 2000. In 2000, the increase in amortization of capitalized software costs was primarily related to Adaptive Server Enterprise 12.0, PowerBuilder 7.0, Jaguar CTS(R) 3.0 and 3.5, and Sybase Enterprise Portal 1.0. Amortization of purchased technology acquired was $12.1 million in 2001, $4.4 million in 2000 and $1.6 million in 1999. Cost of Services Cost of services consists primarily of the cost to provide technical support, consulting and education services and, to a lesser degree, services-related product costs (media and documentation). These costs decreased 3 percent in 2001 compared to 2000, and increased 13 percent in 2000 compared to 1999. These costs decreased as a percentage of services revenues to 44 percent in 2001, compared to 50 percent in 2000, and were 48 percent of services revenues in 1999. The decrease, in absolute dollars and as a percentage of services revenues in 2001 over 2000, was primarily due to a reduction in consulting personnel in the 2001 Plan. This decrease was partially offset by an increase in the costs associated with third party consultants, and 16 consultants acquired in the NEN transaction. The increase in cost of services in absolute dollars and as a percentage of services revenues in 2000 over 1999 was primarily due to an increase in the number of consulting personnel located in North America (partially attributable to the acquisition of HFN), and market driven increases in the labor costs associated with consulting personnel. Sales and Marketing Sales and marketing expense decreased 4 percent during 2001 compared to 2000 (which had increased 11 percent over 1999). Sales and marketing expenses remained consistent at 36 percent of total revenues in 2001, 2000, and 1999. However, the decrease in absolute dollars from 2000 to 2001 was primarily due to a decrease in sales commissions (due to lower license fees revenues and reductions in sales and marketing personnel in the 2001 Plan), and a decrease in certain allocated common costs. Partially offsetting these decreases were sales and marketing expenses associated with NEN. The increase in sales and marketing expenses in absolute dollars in 2000 compared to 1999 was primarily due to sales expenses associated with increased revenues including the addition of HFN, and certain marketing programs undertaken during the year. The increase in sales and marketing expense was partially offset by a decrease in allocated common costs. We allocate various common costs including certain legal expenses, accounting, human resources, external consulting, employee benefits, and facilities costs to sales and marketing, product development and engineering, and general and administrative expenses. The common costs in 2001 were lower than those in 2000 primarily due to a cut back in discretionary spending in response to weaker economic conditions, and the 2001 Plan. The common costs in 1999 were higher than those in 2000 due to certain litigation costs during 1999, the costs associated with internal Y2K compliance, and the streamlining of certain back-office functions during 2000. Product Development and Engineering Product development and engineering expenses (net of capitalized software development costs) decreased 1 percent in 2001 from 2000 (which had decreased 7 percent from 1999). These expenses increased as a percentage of total revenues to 14 percent in 2001 compared to 13 percent in 2000, and were 16 percent of total revenues in 1999. The decrease in absolute dollars in 2001 as compared to 2000 was primarily due to an increase in capitalized software development costs, a decrease in certain research and development expenses due to a greater percentage of R&D personnel employed in lower cost facilities, and a decrease in allocated common costs, partially offset by costs attributable to NEN's product development and engineering efforts. The decrease in absolute dollars in 2000 as compared to 1999 was primarily due to a decrease in personnel expenses and allocated common costs. We capitalize product development and engineering costs during the period between achievement of technological feasibility and general availability of the product. Capitalized amounts totaled approximately $35.8 million in 2001, $20.2 million in 2000, and $18.7 million in 1999. The significant increase in amounts capitalized in 2001 compared to 2000 was primarily attributable to capitalized costs associated with the development of products acquired in the NEN transaction, and other products captured within eBD. In 2001, capitalized software costs included costs incurred for the development of the Enterprise Portal 3.0, Adaptive Server Enterprise 12.5 and 14.0, Adaptive Server IQ 12.4.3, PowerBuilder 8.0, DirectConnect 12.5 and 14.0, MainframeConnect(TM) 12.5 and 14.0, Replication Server 12.5, certain NEN adapters, and SQL Anywhere 8.0. In 2000, capitalized software costs included costs incurred for the development of the Sybase Enterprise Portal 1.0, Sybase Enterprise Portal 2.0, Adaptive Server Enterprise 12.5, Adaptive Server IQ 12.4.2 and 12.5, DirectConnect 12.0 and 12.5, Enterprise Application Server, and MainframeConnect 12.0 and 12.5. In 1999, capitalized software costs included costs incurred for the development of Adaptive Server Enterprise 12.0, Enterprise Event Broker, Sybase Financial Server 1.0, Enterprise Application Studio(TM) 3.5, PowerJ(R) 3.0, Replication Server 12.0, and PowerDesigner 7.0. 17 We believe that product development and engineering expenditures are essential to technology and product leadership and expect product development and engineering expenditures to continue to be significant, both in absolute dollars and as a percentage of total revenues. General and Administrative General and administrative expenses increased 14 percent in 2001 compared to 2000 (which decreased 2 percent from 1999). General and administrative expenses represented 8 percent of total revenues in 2001 compared to 7 percent 2000, and 8 percent in 1999. The increase in absolute dollars and as a percentage of total revenues in 2001 compared to 2000 was primarily due to the added costs associated with the acquisition of NEN. The decrease in absolute dollars and as a percentage of total revenues in 2000 compared to 1999 was primarily due to a decrease in allocated common costs which were partially offset by the added costs associated with the acquisition of HFN. Amortization of Goodwill and Other Purchased Intangibles Amortization of goodwill and other purchased intangibles increased 71 percent during 2001 compared to 2000 (which increased 135 percent over 1999). These costs were 6 percent of total revenues in 2001 compared to 3 percent in 2000, and 2 percent in 1999. The increase in absolute dollars and as a percentage of total revenues in 2001 compared to 2000 was primarily due to the amortization of goodwill and other acquired intangibles arising from the NEN acquisition. The increase in absolute dollars and as a percentage of total revenues in 2000 compared to 1999 was attributable to amortization of goodwill and the established customer list associated with the HFN acquisition. We will apply the new rules on accounting for goodwill and other intangible assets beginning in the first quarter of 2002. Application of the non-amortization provisions of SFAS 142 is expected to result in an increase in pre-tax net income of approximately $61 million in 2002, $59 million in 2003, and $59 million in 2004. In-process research and development NEN In connection with our acquisition of NEN, we allocated $18.5 million of the $339.3 million purchase price to in-process research and development. These amounts were written off during the quarter ended June 30, 2001. In analyzing this acquisition, the decision was made to acquire technology, including in-process technology, rather than to develop it internally. This decision was based on factors such as the amount of internal expertise, time and cost it would take to bring the technology to market. NEN technologies enable e-Business and operational applications to share critical information. NEN's software solutions support integration of Internet and core business packaged applications, application server platforms, industry standard protocols, and proprietary systems. As of February 20, 2001 (the acquisition date) NEN was undergoing development efforts to release the next version of e-Biz Integrator, Process Server(TM), adapters, and emerging products (such as Open Business Interchange(SM)). These development efforts were all proprietary, internal projects. At the acquisition date, the in-process research and development projects had not yet reached technological feasibility, and had no alternative future uses. In assessing the qualification of NEN's various ongoing research and development projects, each project was examined to determine whether technological feasibility had been established as of the acquisition date. Our assessment was based on extensive interviews and a detailed analysis of research and development plans. If the project required additional planning, designing, coding or testing activities to determine whether the associated product could be produced to meet its design specifications, we determined that technological feasibility had not been reached with respect to this project. Due to the complexity and specialized features of the acquired research and development, the technologies under development could only be economically used for their specific and intended purposes in the e-Business integration industry. The features and functions of the products were being developed for 18 specific purposes, and if NEN failed in its efforts, no alternative economic value would result from these efforts. Accordingly, the value allocated to projects that had not reached technology feasibility was immediately expensed at the acquisition date. We estimated the fair value of in-process research and development using an income approach. This involved estimating the fair value of the in-process research and development using risk-adjusted discount rates. The selection of the discount rate was based on a weighted average cost of capital, adjusted to reflect risks associated with the useful life of each technology, profitability levels of each technology, the uncertainty of technology advances known at the time, and each technologies' degree of completion. Projected future net cash flow attributable to NEN's in-process research and development, assuming successful development, were discounted to net present value using a discount rate of 25 percent. We believe that the estimated in-process research and development amount so determined represents fair value and does not exceed the amount another third party would pay for the projects. Revenue estimates in this context were based on relevant market size and growth factors, expected industry trends, individual product sales cycles and the estimated life of each product's underlying technology. This analysis included the revenues projected to result from the expected evolution of the technology over time. Operating expenses used in our analysis included selling, general and administrative and research and development. These expenses were based on an overall analysis of the business enterprise. Total research and development was divided into the costs to complete the in-process research and development projects and costs for developed products that had already been introduced to the market. The allocation was based on an analysis of resources relating to the development of research and development. Costs to complete in-process projects were estimated by management. These costs were allocated based on an analysis of completion efforts and expected completion dates. Costs to complete were further allocated between in-process and future revenues based on an analysis of the evolution of the respective technologies. NEN expected to achieve a target margin of approximately 37 percent from its in-process products. Profitability was expected to be significantly lower in the first years of the products' lifecycle compared to the later years due to higher level of sales and marketing expense in the earlier years as a percentage of revenue. The financial forecasts included only results that were expected to be generated by NEN on a standalone basis, and did not take into consideration synergies resulting from our acquisition. To properly analyze the research and development efforts that had been accomplished as of the acquisition date, and to exclude the completion of development efforts underway, it was necessary to adjust the overall forecasts associated with the research and development projects to reflect only those accomplishments completed as of the acquisition date. The relative contribution made by the completed research and development efforts was assessed based on a variety of factors including absolute development time, costs incurred to date, management estimates, a detailed analysis of each of the primary tasks completed compared to the tasks required to complete the efforts, and the associated risks. NEN's in-process research and development projects were estimated to be between 30 percent and 55 percent complete as of the acquisition date. Development of the majority of the in-process technologies began in early 2000 and was substantially completed in the fall of 2001. At the acquisition date, approximately 278 engineers were engaged in the development of NEN's in-process technologies. Completion of these projects is expected to require significant efforts involving continued software development as well as the testing and re-qualification efforts required to turn the technologies into a set of bug-free, commercial-ready products. These remaining tasks involved substantial risk due to the complex nature of the activities involved. Actual results of our research and development efforts to date have been consistent in all material respects with our assumptions at the time of the acquisition. 19 HFN In connection with the acquisition of HFN in the quarter ended March 31, 2000, we allocated $8.0 million of the $167.6 million purchase price to in-process research and development. As part of the process of analyzing this acquisition, the decision was made to buy technology that had not yet been commercialized rather than to develop the technology internally. This decision was based on factors such as the amount of time and costs it would take to bring the technology to market. HFN had been involved in the development of technologies that enable financial institutions to deliver their services to customers via the Internet. On the date we acquired HFN (January 20, 2000), HFN was conducting development and qualification activities related to a suite of products encompassing bill presentment, small business functions, alternate service delivery methods and related underlying software technology. At that time, the in-process research and development projects had not yet reached technological feasibility and had no alternative future uses. Accordingly, the value allocated to these projects was immediately expensed at the date of acquisition. We estimated the fair value of in-process research and development using an income approach. This involved estimating the fair value of the in-process research and development by determining the present value of the estimated after-tax cash flows expected to be generated by the purchased in-process research and development, using risk adjusted discount rates. The selection of the discount rate was based on a weighted average cost of capital, adjusted to reflect risks associated with the useful life of each technology, profitability levels of each technology, the uncertainty of technology advances known at the time, and each technologies' degree of completion. Projected future net cash flows attributable to HFN's in-process research and development, assuming successful development, were discounted to net present value using a discount rate of 20 percent. We believe that the estimated in-process research and development amount so determined represents fair value and does not exceed the amount another third party would pay for the projects. Revenue estimates were based on relevant market size and growth factors, expected industry trends, individual product sales cycles and the estimated life of each product's underlying technology. The analysis of the in-process technology was determined by incorporating the revenue related to the expected evolution of the technology over time. Once developed, the estimated lifecycle of the product suite was estimated to be approximately 5 to 7 years. As a whole, HFN was expected to exhibit compound annual growth of approximately 38 percent in the period from 2000 through 2007. It was projected that the suite of products resulting from the in-process research and development efforts would begin generating revenue in 2000 and positive cash flow in 2001. Operating expenses included selling, general and administrative expenses, and research and development expenses. Total research and development was divided into: (i) the costs to complete the in-process research and development projects and (ii) costs for developed products that had already been introduced to the market, including product maintenance. Costs to complete in-process projects were estimated by management. These costs were allocated based on an analysis of expected project completion dates. The resultant target margin that HFN expected to achieve from the in-process products was approximately 37 percent. Profitability was expected to be significantly lower in the first several years of the product suite's lifecycle compared to the latter years due to a higher level of sales and marketing expenses as a percentage of revenue in the earlier years. The financial forecasts only included results we expected HFN to generate on a standalone basis, and did not take into consideration synergies resulting from our acquisition. To properly analyze the research and development efforts that had been accomplished to date and exclude the effort to be completed on the development efforts underway, it was necessary to adjust the overall forecasts associated with the research and development projects to reflect only the accomplishments made as of the date of the acquisition towards the ultimate completion of the in-process R&D projects. The relative contribution made on the research and development efforts was assessed based on a variety of factors including absolute development time (costs) incurred to date, management estimates, and a detailed analysis of each of the primary tasks completed compared to the tasks required to complete the efforts and the associated risks. Overall, HFN's in-process research and development projects were estimated to be approximately 75 percent 20 complete. HFN estimated that the projects would be completed in March 2000, after which time it expected to begin generating economic benefits from the completed projects. As of the valuation date, approximately 86 man months totaling $650,000 had been expended on the in-process research and development projects. In total, costs to complete HFN's in-process research and development were expected to be approximately $150,000 and require 23 man months of work. Completion of these projects was expected to require significant efforts involving continued software development as well as the testing and re-qualification efforts required to turn a "new-to-the-world" software suite into a set of bug-free, commercial-ready products. These remaining tasks involved substantial risk due to the complex nature of the activities involved. Historically, many of HFN's in-process research and development projects have required rework and additional expenditures in comparable stages of development. The research and development efforts described above are substantially complete and actual results of our research and development efforts to date have been consistent, in all material respects, with our assumptions at the time of the HFN acquisition. Stock Compensation Expense Stock compensation expense reflects non-cash compensation expense associated with restricted stock granted to certain individuals in the three months ended June 30, 2001, and the amortization of the value assigned to certain unvested stock options assumed in the acquisition of NEN. Cost (Reversal) of Restructuring The Company's 2001 Plan included restructuring charges of $25.2 million during the quarter ended June 30, 2001, restructuring charges of $10.3 million during the quarter ended September 30, 2001, and restructuring charges of $13.3 million during the quarter ended December 31, 2001. The goal of the 2001 Plan was to align our cost structure with anticipated revenues. We terminated a total of 880 employees, closed or consolidated more than 30 facilities worldwide, wrote down certain assets no longer needed for future business operations, and incurred various other exit activity expenses directly related to the 2001 Plan. The amounts included in the 2001 Plan were as follows:
CASH/ Q2 Q3 Q4 NON CASH 2001 2001 2001 TOTAL -------- ----- ----- ----- ----- (DOLLARS IN MILLIONS) Termination payments to employees and other related costs............................................. Cash $10.1 $ 5.1 $ 4.0 $19.2 Lease cancellations and commitments................. Cash 14.2 3.8 7.8 25.8 Write-downs of: Property, equipment and improvements.............. Non-cash 0.5 1.3 1.4 3.2 Other............................................... Cash 0.4 0.1 0.1 0.6 ----- ----- ----- ----- $25.2 $10.3 $13.3 $48.8 ===== ===== ===== =====
TERMINATION PAYMENTS TO EMPLOYEES AND OTHER RELATED COSTS During the second quarter of 2001, the Company incurred a restructuring charge of $10.1 million for severance payments and other termination benefits provided to approximately 400 employees. During the third quarter of 2001, the Company incurred a restructuring charge of approximately $5.1 million for severance payments and other termination benefits provided to approximately 280 employees. During the fourth quarter of 2001, the Company incurred a restructuring charge of approximately $5.7 million for severance payments and other termination benefits provided to approximately 200 employees. Severance payments and termination benefits were accrued and charged to restructuring costs in the period that amounts were determined and communicated to the affected employees. During the fourth quarter, the Company evaluated the costs associated with providing medical coverage and other benefits to certain employees terminated in the second and third quarters. As a result of the 21 Company's experience through the end of the fourth quarter, the amount of the severance accrual relating to medical coverage and other benefits was reduced by approximately $1.0 million. In addition, there was a reversal in the fourth quarter to the severance accrual for approximately $0.7 million associated with a number of individuals who were either not terminated after they were asked to stay to fill positions voluntarily vacated by employees not included in the restructuring plan, or were foreign employees paid less then the amount originally provided after a legal proceeding to determine the severance amount as required under local law. The above reversal was recorded by a corresponding credit to restructuring expense. LEASE CANCELLATIONS AND COMMITMENTS During the second quarter of 2001, Sybase incurred restructuring charges of $13.5 million for facilities consolidated or closed in Boulder, Colorado; Emeryville, California; Hartford, Connecticut; Englewood, Colorado; Milpitas, California; New York, New York; Southfield, Michigan; Watertown, Massachusetts; Westport, Connecticut; and Orem, Utah. The Company also incurred restructuring charges of $0.7 million for facilities consolidated or closed in Canada, the United Kingdom, Belgium, Spain and Sweden. During the third quarter of 2001, Sybase incurred restructuring charges of $4.1 million for facilities consolidated or closed in Boston, Massachusetts, and in the United Kingdom. During the fourth quarter of 2001, the Company incurred restructuring charges of $4.4 million for facilities consolidated or closed in California, Colorado, Florida, Virginia, Mexico, Argentina, Puerto Rico, Japan, France and Switzerland. In addition, based on the analysis of independent real estate consultants, and reflecting changes in the economic conditions since the original accruals were established, the Company recorded additional restructuring charges of $4.0 million during the fourth quarter to provide for the current estimated cost to consolidate or close facilities in California, Colorado, Georgia, Michigan, Utah, Massachusetts, New York and the UK. The offices included above were primarily used for the sale of Sybase software products, professional services and customer support, and in certain instances research and development. These restructuring charges reflect the remaining contractual obligations under the facility leases and certain costs associated with the expected sublease of the facilities, net of anticipated sublease income from the date of abandonment to the end of the lease term. Certain facilities described above continued in use during the completion of the restructuring. The Company continued to record monthly rent expense on these facilities as an operating expense until the facilities were abandoned. During the fourth quarter of 2001, approximately $0.6 million was reversed by a corresponding credit to restructuring expense, a second quarter accrual established to terminate a lease on a building which was later destroyed during the terrorist attacks of September 11th. During the fourth quarter the Company was notified that no additional payments would be required under the lease on the facility, and as a result the associated restructuring accrual was reversed. WRITE-DOWNS OF PROPERTY, EQUIPMENT AND FURNITURE In the second and third quarters of 2001, Sybase incurred restructuring charges of $0.5 million and $1.3 million, respectively, which were primarily related to the impairment of the carrying values of leaseholds and certain furniture attributable to facilities closed in connection with the restructuring. The assets were all taken out of service and held for disposal at the date the associated facility was closed. In the fourth quarter of 2001, the Company incurred a restructuring charge of $1.4 million, which was related to the impairment of the carrying value of certain computer equipment and software associated with individuals terminated during the year for which there was no intended alternative use, and leaseholds and certain furniture attributable to facilities closed in connection with the restructuring. OTHER During the second quarter of 2001, the Company incurred a restructuring charge of $0.4 million associated with certain other restructuring related exit expenses, including legal costs associated with the severance of employees, travel and security costs associated with the termination of employees, and fees associated with the cancellation of certain obligations, and relocation expenses for certain terminated 22 expatriates. During the third and fourth quarters of 2001, the Company incurred restructuring charges of $0.1 million for professional fees associated with the restructuring. The following table summarizes the activity related to the restructuring:
ACCRUED LIABILITIES TOTAL AMOUNTS AMOUNTS AMOUNTS AT CHARGES PAID WRITTEN-OFF REVERSED 12/31/01 ------- ------- ----------- -------- ----------- (DOLLARS IN MILLIONS) Termination payments to employees and other related costs.............................. $20.9 $13.5 -- $1.7 $ 5.7 Lease cancellations and commitments.......... 26.7 3.1 -- 0.9 22.7 Costs related to the write-down of assets.... 3.2 -- $3.2 -- -- Other........................................ 0.6 0.4 -- -- 0.2 ----- ----- ---- ---- ----- $51.4 $17.0 $3.2 $2.6 $28.6 ===== ===== ==== ==== =====
It is estimated that the remaining accruals relating to termination benefits and other restructuring relating activities will be paid by the second quarter of 2002. The payments of accruals related to lease cancellations and commitments which are dependent upon market conditions and our ability to negotiate acceptable lease buy-out outs or locate suitable subleases, will be paid over a period not to exceed nine years. As of December 31, 2001, we had completed substantially all of the employee terminations identified during the second and third quarters. Approximately 100 of the 200 employees identified in the fourth quarter were notified of their termination benefits, but had not received their severance payments at December 31, 2001. OPERATING INCOME/LOSS
2001 CHANGE 2000 CHANGE 1999 ------ ------ ----- ------ ----- (DOLLARS IN MILLIONS) Operating income/(loss)...................... $(16.5) (118)% $90.5 4% $87.0 Percentage of total revenues............... (2)% 9% 10%
Operating income in 2001 decreased 118 percent over 2000 (which had increased 4 percent over 1999). The 2001 operating loss includes $48.8 million in 2001 Plan restructuring charges. In 2000 and 1999, operating income included a reversal to restructuring charges of $0.8 million and $8.5 million, respectively. In 2001, the decrease in operating income was primarily due to the decrease in license fees revenues and the increase in operating expenses including expenses associated with the amortization of goodwill and other purchased intangibles, the $18.5 million write-off of in-process research and development relating to the acquisition of NEN and 2001 Plan restructuring charges. These decreases were partially offset by the increase in services revenues. The increase in operating income in 2000, compared to 1999, is primarily due to an increase in total revenues and the continued benefit from the restructure actions taken in 1998 that kept 2000 sales and marketing, product development and engineering, and general and administrative expenses equal to or lower than the levels obtained 1999, as a percentage of revenue. The increase was partially offset by an increase in cost of services and expenses associated with the amortization of goodwill and established customer lists, the write-off of in-process research and development and the amortization of purchased technology relating to the acquisition of HFN. 23 OTHER INCOME (EXPENSE), NET
2001 CHANGE 2000 CHANGE 1999 ----- ------ ----- ------ ----- (DOLLARS IN MILLIONS) Interest income............................... $16.9 (6)% $17.9 32% $13.6 Percentage of total revenues................ 2% 2% 2% Interest expense and other, net............... $ 0.6 * $(0.8) * $ 0.2 Percentage of total revenues................ * * * Minority interest............................. * * $ 0.1 * -- Percentage of total revenues................ * ** --
- --------------- * Not meaningful In 2001, interest income decreased 6 percent from 2000 (which had increased 32 percent over 1999). Interest income consists primarily of interest earned on investments. The decrease in interest income in 2001 as compared to 2000 was primarily due to the decrease in the interest rate yields of the cash balances invested. The increase between 2000 and 1999 was attributable to larger average-invested cash balances, and an increase in the interest rate yields of the cash balances invested. Interest expense and other, net was $0.6 million in 2001, $(0.8) million in 2000, and $0.2 million in 1999. Interest expense and other, net includes interest expense from capital lease obligations incurred in prior years; gains from the disposition of certain real estate and investments; bank fees; expenses, net gains and losses resulting from foreign currency transactions and the related hedging activities; and the cost of hedging foreign currency exposures. In 2001, the increase in interest expense and other, net as compared to 2000 was primarily due to the hedging activities that mitigated the losses resulting from foreign currency transactions. The decrease in interest expense and other, net during 2000 compared to 1999, was due to the 1999 sale of certain European real estate. PROVISION FOR INCOME TAXES
2001 CHANGE 2000 CHANGE 1999 ----- ------ ----- ------ ----- (DOLLARS IN MILLIONS) Provision for income taxes.................... $26.5 (25)% $35.5 (7)% $38.3
In 2001 income taxes of $26.5 million were recorded on pre-tax book income of $1.0 million. The income tax expense primarily results for taxes on earnings generated in certain international jurisdictions. Overall, we had significant pre-tax earnings in foreign jurisdictions and a significant pre-tax loss in the U.S. The U.S. loss primarily resulted from the amortization or write-off of intangibles acquired in various acquisitions accounted for as purchases, and the 2001 Plan. A significant increase in expenses not deductible for tax purposes, primarily the amortization or write-off of intangibles acquired in the NEN acquisition, made the tax rate as a percentage of 2001's pre-tax income of $1.0 million, meaningless when compared to 2000 and 1999. In 2000, taxes were recorded at a rate of 33 percent on pre-tax income, while taxes in 1999 were recorded at a 38 percent rate. The 2000 and 1999 tax provisions were the result of taxable earnings generated from operations in both the US and certain international jurisdictions. The 2000 provision benefited from a $9.7 million reversal of a previously recorded valuation allowance on our deferred tax asset. The valuation allowance reversed related to certain research and development tax credits that we believe will generate a tax benefit in future periods given their carryforward periods. The reversal of the valuation allowance is a non-recurring benefit, and will not impact our provision for income taxes in future years. The benefit of the valuation allowance reversal was offset somewhat in 2000 by an increase in expenses that were not deductible for tax purposes. These expenses were primarily the amortization of goodwill and established customer lists, the write-off of in-process research and development and the amortization of purchased technology relating to the acquisition of HFN. 24 We had a net deferred tax asset of $42.0 million at December 31, 2001. This deferred tax asset included a valuation allowance of $54.4 million. As of December 31, 2001, the gross deferred tax asset included research and development tax credits of $19.6 million, foreign tax credits of $9.7 million and an asset for certain net operating losses of $45.9 million. The research and development tax credits expire in years from 2005 through 2021, the foreign tax credits expire in years from 2002 through 2005 and the net operating losses expire in years from 2006 and 2021. In order to realize the net deferred tax assets we must generate sufficient taxable income in future years in appropriate tax jurisdictions so that we can obtain benefit from the reversal of temporary differences and from tax credit carryforwards. The amount of the deferred tax assets considered realizable is subject to adjustment in future periods if estimates of future taxable income are reduced. Any such adjustments to the deferred tax assets would be charged to income in the period such adjustment was made. See Note Eight to Consolidated Financial Statements, Part II, Item 8, incorporated here by reference. The valuation allowance increased by $38.9 million in 2001. This movement was primarily the valuation allowance attached to deferred tax assets acquired during the year which are associated with the net operating losses of NEN. NET INCOME (LOSS) PER SHARE
2001 CHANGE 2000 CHANGE 1999 ------ ------ ----- ------ ----- (DOLLARS AND SHARES IN MILLIONS) Net income (loss)............................ $(25.5) (135)% $72.1 15% $62.5 Percentage of total revenues............... (3)% 8% 7% Basic: Net income (loss) per share................ $(0.27) (133)% $0.82 8% $0.76 Shares used in computing basic net income (loss) per share........................ 94.6 8% 87.7 7% 81.8 Diluted: Net income (loss) per share................ $(0.27) (135)% $0.78 5% $0.74 Shares used in computing diluted net income (loss) per share........................ 94.6 3% 92.2 10% 84.2
Our net income in 2001 decreased by 135 percent over 2000. The reasons for this decrease have been discussed in the preceding paragraphs. The basic and diluted net loss per share was $0.27 in 2001. The basic and diluted net income per share in 2000 was $0.82 and $0.78 per share, respectively. The basic and diluted net income per share in 1999 was $0.76 and $0.74 per share, respectively. Shares used in computing basic net income (loss) per share increased 8 percent in 2001 primarily due to the shares issued in 2001 in connection with the acquisition of NEN, partially offset by shares repurchased under our share repurchase plan. Shares used in computing basic net income (loss) per share increased 7 percent in 2000 primarily due to the shares issued in 2000 in connection with the acquisition of HFN. Shares used in computing diluted net income (loss) per share increased 3 percent in 2001 primarily due to the shares issued in connection with the acquisition of NEN. Shares used in computing diluted net income (loss) per share increased 10 percent in 2000 primarily due to the shares issued in connection with the acquisition of HFN. See Note One to Consolidated Financial Statements, Part II, Item 8, incorporated here by reference. LIQUIDITY AND CAPITAL RESOURCES
2001 CHANGE 2000 CHANGE 1999 ------ ------ ------ ------ ------ (DOLLARS IN MILLIONS) Working capital............................ $108.6 (31)% $157.5 24% $127.2 Cash, cash equivalents and cash Investments.............................. $343.2 (3)% $354.6 0% $352.9 Net cash provided by operating activities............................... $ 93.1 (46)% $171.1 (4)% $178.7 Net cash used for investing activities..... $ 22.9 (81)% $123.0 4% $118.0 Net cash used for financing activities..... $ 75.4 32% $ 57.1 90% $ 30.1
25 Net cash provided by operating activities decreased 46 percent between 2000 and 2001 and 4 percent between 1999 and 2000. Net cash provided by operating activities during 2001 reflects net loss of $25.5 million compared to net income of $72.1 million in 2000 and $62.5 million in 1999. The decrease in net cash provided by operating activities between 2001 and 2000 is primarily due to a decrease in net income, deferred revenue and accrued liabilities partially offset a reduction in accounts receivable and an increase in non-cash expenses relating to amortization, depreciation and the write-off of in-process research and development. Days sales outstanding in accounts receivables was 71 days for the quarter ended December 31, 2001 compared to 74 days for the quarter ended December 31, 2000. The decrease between net cash provided by operating activities in 2000 and 1999 was primarily due to the increase in accounts receivables and deferred revenue balances at 2000 compared to 1999, and an increase in depreciation and amortization, which are included in net income (loss), but do not require the use of cash. Days sales outstanding in accounts receivable was 74 days for the quarter ended December 31, 2000 compared to 69 days for the same period in 1999. Net cash used for investing activities decreased 81 percent between 2000 and 2001. The decrease in cash used by investing activities was primarily due to net cash gained from business combinations, primarily the $28.1 million acquired in the NEN acquisition, compared to net cash used, primarily in connection with the HFN acquisition, for the same period last year. In addition, cash of approximately $29.5 million was generated from the sale and maturity of cash investments during 2001 compared to a net cash investment of $18.2 million in such securities during 2000. Net cash used for investing activities increased 4 percent between 1999 and 2000. This increase was primarily attributable to $33.6 million used for business combinations, namely our acquisition of HFN, the use of $15.7 million to purchase minority equity investments in five early-stage e-Business companies and a $18.0 million security deposit on a 15-year non-cancelable lease associated with our new Dublin, California facility. This increase was partially offset by a $59.6 million year over year decrease in cash investments. In 1999, we sold our facility in Concord, Massachusetts and simultaneously entered into a sales-leaseback agreement. Under the terms of this agreement, we entered into a seven-year operating lease. The sales price of $5.3 million resulted in a book gain of $2.8 million, which will be amortized over the seven-year lease period. Net cash used for financing activities increased 32 percent between 2000 and 2001 and 90 percent between 1999 and 2000. The increases in both 2000 and 1999 were primarily the result of an increase in the cash used to repurchase our Common Stock during 2000 and 2001. Beginning in 1998, the Board of Directors authorized Sybase to repurchase its outstanding Common Stock in open market transactions from time to time, subject to price and other conditions. Through December 31 2001, aggregate amounts authorized under the repurchase program total $400.0 million. Under this program, we repurchased 6.4 million shares of our Common Stock in 2001 at a cost if $106.9 million, 3.9 million shares in 2000 at a cost of $89.1 million, and 4.9 million shares in 1999 at a cost of $60.7 million. We had no significant commitments for capital expenditures at December 31, 2001, excluding $3.4 million in restricted cash already set aside for leasehold improvements associated with the move to our new Dublin, California facility. We expect to fund expenditures for future capital requirements, liquidity and strategic operating programs from a combination of available cash balances and internally generated funds. We have no outside debt, and do not have any plans to enter into borrowing arrangements. We engage in global business operations and are therefore exposed to foreign currency fluctuations. As of December 31, 2001, we had identifiable assets totaling $172.8 million associated with our European operations and $81.9 million associated with our Asia and Latin American operations. We experience foreign exchange transaction exposure on our net assets and liabilities denominated in currencies other than the US dollar. As these assets are considered by Sybase Inc., the U.S. parent company, to be a permanent investment in the respective subsidiaries, the related foreign currency translation gains and losses are reflected in "Accumulated other comprehensive loss" under "Stockholders' equity" on the balance sheet. We also experience foreign exchange translation exposure from certain balances that are denominated in a currency other than the functional currency of the entity on whose books the balance resides. We hedge certain of these short-term 26 exposures under a plan approved by the Board of Directors. See "MD&A -- Financial Risk Management," Part II, Item 7. Our contractual obligations at December 31, 2001, are summarized as follows:
PAYMENTS DUE BY PERIOD --------------------------------------------------------------- (DOLLARS IN MILLIONS) 2002 2003-2004 2005-2006 CONTRACTUAL OBLIGATIONS TOTAL COMMITMENTS COMMITMENTS COMMITMENTS AFTER 2006 ----------------------- -------- ----------- ----------- ----------- ---------- Restructuring-related commitments: Leases............................ $ 22.7 $ 8.1 $ 6.4 $ 4.2 $ 4.0 Other............................. 5.8 5.8 Other commitments: Operating leases.................. 417.8 52.9 81.1 62.6 221.2 Third-party royalty commitments... 3.1 2.0 1.1 -------- ------- ------- ------- -------- Total commitments................. $ 449.4 $ 68.8 $ 88.6 $ 66.8 $ 225.2 -------- ------- ------- ------- --------
NEW ACCOUNTING PRONOUNCEMENTS In August 2001, the Financial Accounting Standards Board (FASB) issued Statements on Financial Accounting Standards (SFAS) 144, "Accounting for the Impairment or Disposal of Long-lived Assets." SFAS 144, which supercedes SFAS 121, establishes a single accounting model, based on the framework established in SFAS 121, for long-lived assets to be disposed of by sale. The statement is effective for financial statements issued for fiscal years beginning after December 15, 2001. The provisions of this statement are not expected to have a significant impact on our financial condition or operating results. In June 2001, the FASB issued SFAS 142, "Goodwill and Other Intangible Assets," effective for fiscal years beginning after December 15, 2001. Under SFAS 142, goodwill and intangible assets deemed to have indefinite lives will no longer be amortized but will be subject to annual impairment tests. Other intangible assets will continue to be amortized over their useful lives. SFAS 142 also requires that goodwill be tested for impairment at the reporting unit level at adoption and at least annually thereafter, utilizing a two-step methodology. The initial step requires us to determine the fair value of each reporting unit and compare it to the carrying value, including goodwill, of such unit. If the fair value exceeds the carrying value, no impairment loss would be recognized. However, if the carrying value of the reporting unit exceeds its fair value, the goodwill of this unit may be impaired. The amount, if any, of the impairment would then be measured in the second step. We will apply the new rules on accounting for goodwill and other intangible assets beginning in the first quarter of 2002. Application of the non-amortization provisions of SFAS 142 is expected to result in an increase in pre-tax net income of approximately $61 million in 2002, $58 million in 2003, and $58 million in 2004. During 2002, we performed, under SFAS 142, the first of the required impairment tests of goodwill and indefinite lived intangible assets as of January 1, 2002. That test indicated that the carrying values of certain reporting units exceeded their estimated fair values, as determined utilizing various valuation techniques including discounted cash flow and comparative market analysis. Thereafter, given the indication of a potential impairment, we completed step two of the test. Based on this analysis, we will recognize an impairment loss of approximately $150 million in the first quarter of 2002. This loss will be recognized as the cumulative effect of an accounting change. During 2001 the applicable accounting policy for measuring goodwill impairment was an undiscounted cash flow basis, a method required by SFAS 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of". When analyzed using undiscounted cash flows prescribed by SFAS 121, we did not have an impairment of any intangibles assets at December 31, 2001. 27 In June 2001, the FASB issued SFAS 141, "Business Combinations," effective for fiscal years beginning after December 15, 2001. SFAS 141 requires business combinations initiated after June 30, 2001 to be accounted for using the purchase method of accounting and broadens the criteria for recording intangible assets separate from goodwill. The provisions of this statement are not expected to have a significant impact on our financial condition or operating results. In November 2001, the FASB issued a Staff Announcement Topic No. D-103 (Topic D-103), "Income Statement Characterization of Reimbursements Received for 'Out-of-Pocket' Expenses Incurred." Topic D-103 establishes that reimbursements received for out-of-pocket expenses should be characterized as revenue in the statement of operations. We are required to adopt the guidance effective January 1, 2002. We currently record out-of-pocket expense reimbursements as a reduction to operating expenses. Beginning in January 1, 2002, we will record these reimbursements as service fees revenue, which will result in increased revenue and increased operating expenses. Comparative financial statements for prior year information will be reclassified to conform to the new presentation. The application of Topic D-103 will not result in any impact to operating or net income in any past or future periods. The provisions of this statement are not expected to have a significant impact on our financial condition of operating results. In June 1998, the FASB issued SFAS 133 "Accounting for Derivative Instruments and Hedging Activities." SFAS 133 establishes methods of accounting for derivative financial instruments and hedging activities related to those instruments as well as other hedging activities. In June 1999, the FASB issued SFAS 137, "Accounting for Derivative Instruments and Hedging Activities -- Deferral of the Effective Date of FASB Statement No. 133," which amended SFAS 133 by deferring the effective date to the fiscal year beginning after June 30, 2000. In June 2000, the FASB issued FSAS 138, "Accounting for Certain Derivative Instruments and Certain Hedging Activities -- an Amendment to FASB Statement No. 133" which amended FSAS 133 with respect to four specific issues. We adopted FSAS 133 as amended, for the year ending December 31, 2001. The adoption of FSAS 133 did not have a material effect on our consolidated financial position or results of operations. FINANCIAL RISK MANAGEMENT FOREIGN EXCHANGE RISK As a global concern, we face exposure to adverse movements in foreign currency exchange rates. These exposures may change over time as business practices evolve and could have a material adverse impact on our financial position and results of operations. Historically, our primary exposures have related to non dollar-denominated sales and expenses in Europe, Asia Pacific, and Latin America. In order to reduce the effect of foreign currency fluctuations, we utilize foreign currency forward exchange contracts (forward contracts) to hedge certain foreign currency transaction exposures outstanding during the period (approximately 30 days). The gains and losses on the forward contracts mitigate the gains and losses on our outstanding foreign currency transactions. We do not enter into forward contracts for trading purposes. All foreign currency transactions and all outstanding forward contracts are marked-to-market at the end of the period with unrealized gains and losses included in interest expense and other, net. The unrealized gain (loss) on the outstanding forward contracts as of December 31, 2001 was immaterial to our consolidated financial statements. 28 The tables below provide information about our foreign currency forward contracts as of December 31, 2001 and 2000. All of the outstanding forward contracts at December 31, 2001, had maturities of approximately 30 days. The fair value of these outstanding forward contracts was not material as of December 31, 2001 and 2000.
US$ NOTIONAL AVERAGE FORWARD CONTRACTS -- 2001 AMOUNT CONTRACT RATE ------------------------- -------- ------------- (AMOUNTS IN THOUSANDS EXCEPT EXCHANGE RATES) Contracts for the sale of US Dollars and purchase of: Canadian Dollars.......................................... $ 4,140 0.6273 Swedish Krona............................................. $ 1,526 0.0954 Euro...................................................... $ 9,177 0.8910 Singapore Dollars......................................... $ 703 0.5410 Contracts for purchase of US Dollars and sale of: Swiss Franc............................................... $ 1,387 1.6584 Contracts for purchase of Euros and sale of: Swedish Krona............................................. $ 382 9.3390 Swiss Franc............................................... 2,414 1.4776 UK Pound.................................................. 15,953 0.6150 Norwegian Krone........................................... 1,915 8.0116 ------- Total....................................................... $37,597 =======
NOTIONAL AVERAGE FORWARD CONTRACTS -- 2000 AMOUNT CONTRACT RATE ------------------------- -------- ------------- (AMOUNTS IN THOUSANDS EXCEPT EXCHANGE RATES) Contracts for the purchase of US Dollars: Japanese Yen.............................................. $ 5,719 113.6500 Contracts for sale of US Dollars: Canadian Dollars.......................................... 1,406 0.6694 Euro...................................................... 8,275 0.9403 Contracts for purchase of Euros: Swedish Krona............................................. $ 2,409 8.8881 Swiss Franc............................................... 3,277 1.5278 UK Pound.................................................. 13,683 0.6305 Norwegian Krone........................................... 2,035 8.3224 ------- Total....................................................... $36,804 =======
INTEREST RATE RISK Our exposure to market risk for changes in interest rates relates to our investment portfolio, which consists of taxable, short-term money market instruments and debt securities with maturities between 90 days and two years. We have no cash flow exposure due to rate changes for cash equivalents and cash investments as all of these investments are at fixed interest rates. We do not use derivative financial instruments in our investment portfolio. We place our investments with high credit quality issuers and, by policy, we limit the amount of credit exposure to any one issuer. We mitigate default risk by investing in only the safest and highest investment grade securities and by monitoring the credit rating of investment issuers. The portfolio includes only marketable securities with 29 active secondary or resale markets to ensure portfolio liquidity. We have no cash flow exposure due to rate changes for our investment portfolio, since all investments are made in securities with fixed interest rates. FUTURE OPERATING RESULTS Our future operating results may vary substantially from period to period due to a variety of significant risks, some of which are discussed in this Report on Form 10-K. We strongly urge current and prospective investors to carefully consider the cautionary statements and risks contained in this Report, including those regarding forward-looking statements set forth on Page 1 of this Report. Stock Price Volatility Our ability to exceed, or our failure to achieve, expected operating results for any period could significantly impact our stock price. Inevitably, some investors will experience gains while others will experience losses depending on the timing of their investment. The market for our stock and for technology stocks in general has been highly volatile, and the trading price of our Common Stock has fluctuated widely in recent years. The stock price may continue to fluctuate in the future in response to various factors, including our financial results, press and industry analyst reports regarding our company and other high technology companies, market acceptance of our products, services and pricing policies, the activities of our competitors, acquisitions of other businesses and technologies and other events, including acts of war and other related events such as the September 11, 2001 terrorist attacks on the World Trade Center in New York. Revenue Related Factors The timing and amount of our revenues are subject to a number of factors that make it difficult to accurately estimate revenues and operating results on a quarterly or annual basis. Historically, our license fees revenues have tended to decline between the fourth quarter of one year and the first quarter of the following year. This has contributed to lower total revenues and earnings in the first quarter compared to the preceding fourth quarter. We currently anticipate that this seasonal pattern will continue. Since we operate with little or no backlog, quarterly revenues depend largely on orders booked and shipped in that quarter. Historically, we have recorded 50% to 70% of our quarterly revenues in the last month of each quarter, particularly during the final two weeks of that month. Our customers include many large enterprises that make substantial investments in our products and services. Therefore, the inability to record one or more large orders from a customer at the very end of a quarter could materially and adversely impact our results of operations. Our operating expenses are based on projected annual and quarterly revenue levels, and are generally incurred ratably throughout each quarter. Since we strive to align our cost structure with anticipated future revenues on an ongoing basis, failure to realize projected revenues for a specified period could impact operating results, causing an operating loss for that period, as occurred in the second and third quarters of this year, and in the first and fourth quarters of 1998. In North America, we currently ship most of our products from our Emeryville, California distribution facility. Because we tend to record a high percentage of revenues during the last two weeks of each quarter, disruption of operations at this distribution facility at that time (e.g., relocation of some or all of this facility to Dublin, California (as is planned in the first quarter of 2002), natural calamity, acts of war, governmental intervention or systems failure) could directly harm our ability to record revenues for such quarter. This could, in turn, have an adverse impact on operating results. Competition The market for our products and services is extremely competitive, and is marked by dynamic customer demands, short product life cycles, and the rapid emergence of the e-Business marketplace. We have numerous competitors, including large companies such as Oracle Corporation, Microsoft Corporation, and IBM Corporation, as well as smaller highly aggressive firms. Many of these companies may have greater financial, technical, sales, and marketing resources, and certain of these companies have larger installed customer bases. In addition, our competitors' advertising and marketing efforts could adversely influence 30 customer perception of our products and services, and harm our business and prospects as a result. To remain competitive, we must be able to develop new customers and new products, enhance existing products and retain competitive pricing policies in a timely manner. Our failure to compete successfully with new or existing competitors could have a material adverse impact on our business, and on the market price of our stock. Product Development Increasing widespread use of the Internet may significantly alter how we do business in the future. This, in turn, could affect our ability to timely meet the demand for new or enhanced products and services at competitive prices. In March 2001, we began shipping the latest version of Sybase Enterprise Portal, the industry's first enterprise-class portal product designed to enable organizations to provide personalized business interfaces to employees, customers, partners and suppliers. With our acquisition of NEN in April 2001, we gained the ability to offer enterprise application integrators that integrate Sybase Enterprise Portal with other applications. Sybase Enterprise Portal solutions are intended to enable successful e-Business strategies for organizations transacting business via the Internet. As a general matter, deployment of enterprise portals has increased dramatically in recent years, and we believe that increasing demand for enterprise portal solutions will enhance our revenues and profitability. However, if the market does not continue to develop as anticipated, or if our Enterprise Portal solutions and services do not successfully compete in the marketplace, increased revenues and profitability may not be realized. Our future results may also be affected if our products cannot interoperate and perform well with software products of other companies. Certain leading applications currently are not interoperable with our products, and others may never be. In addition, many of our principal products are designed for use with products offered by competitors. In the future, vendors of non-Sybase products may become less willing to provide us with access to their products, technical information, and marketing and sales support, which could harm our business and prospects. Divisional Sales Model We are organized into five separate business segments, each of which maintains financial accountability for its operating results, dedicated product development and engineering, product marketing, partner relationship management and customer support teams. This structure is intended to enhance overall revenues and profitability by providing increased focus on our key markets. In January 2000, the acquisition of HFN (now FFI) increased our focus on the financial services vertical market. In May 2000, we announced the launch of iAS, a subsidiary formed to continue the business of the former MEC division in mobile, wireless and embedded products and services. eBD was created in the second quarter of 2001 and consists of certain operations of NEN along with certain products previously in the ESD segment and certain products previously in the former Internet Applications Division. For more information regarding our divisional sales model, see Note Ten to Consolidated Financial Statements, Part II, Item 8, incorporated here by reference. Further changes in our divisional sales model could have a direct affect on our results of operations. If we have misjudged demand for our products and services in our target markets, or if our divisions and subsidiaries generally are unable to coordinate their respective sales efforts in a focused and efficient way, this could materially and adversely affect our business and prospects. International Operations We derive a substantial portion of our revenues from our international operations. At the end of fourth quarter of 2001, these revenues represented 42% of our total revenues. As a global concern, we face exposure to adverse movements in foreign currency exchange rates. For a discussion of risks associated with currency fluctuation, see "Financial Risk Management" above, incorporated here by reference. Our revenues from international operations could also fluctuate due to the relative immaturity of some markets, rapid growth in other markets, and organizational changes we have made to accommodate these conditions. For example, in February 2001, we acquired our distributor in Denmark and in September 2000, 31 we acquired certain assets and assumed certain liabilities of our distributor in Mexico. During 1998 and 1999, we closed subsidiaries in Mexico, Thailand, Chile, Peru and Venezuela. Several significant management and organizational changes occurred in the same period, including the resignation or replacement of several country managers in Europe and Asia and the European General Manager. Other factors that could affect aspects of our international operations include: - Changes in political, regulatory, or economic conditions - Changes or limitations in trade protection laws - Changes in tax treaties or laws favorable to Sybase - Natural disasters, political unrest and acts of war Intellectual Property Our inability to obtain adequate copyright, patent or trade secret protection for our products in certain countries may have a material adverse impact on future operating results. Also, as the number of software products and associated patents increase, it is possible that software developers will become subject to more frequent infringement claims. For information about material litigation involving trademark infringement claims, see Note Twelve to Consolidated Financial Statements, Part II, Item 8, incorporated here by reference. In the past, third parties have claimed that our products violated their patents or other proprietary rights. It is possible that such claims will be asserted in the future. Also, to the extent we acquire other technologies, whether directly from third parties or through acquisitions of other companies, we face the possibility that such intellectual property will be found to infringe or violate the proprietary rights of others. Regardless of whether these claims have merit, they can be time consuming and expensive to defend or settle, and can harm our business and reputation. We do not believe any of our products infringe any third party patents or proprietary rights, but there is no guarantee that we can avoid claims or findings of infringement in the future. Human Resources Our inability to hire and retain qualified technical, managerial, sales and other employees could affect our product development and sales efforts, other aspects of our operations, and our financial results. The relatively high cost of living in the San Francisco Bay Area, where our headquarters is located, could also impact the degree of future employee turnover. In recent years, we have experienced a number of changes in our Board of Directors and in our executive management team. For example, in July 2001, Richard Moore joined us as Senior Vice President and General Manager of our newly created v-Business Group. In October 2001, Billy Ho, our Senior Vice President and General Manager of eBD, replaced George F. (Rick) Adam, former CEO of NEN who had previously been appointed to the position when we acquired NEN in April 2001. These and other changes involving executives and managers resulting from acquisitions, mergers and other events could increase the current rate of employee turnover, particularly in consulting, engineering and sales. Additionally, further changes in Board membership could affect the Company's current strategic business plans. Acquisitions and Strategic Relationships We continually explore possible acquisitions and other strategic ventures to expand and enhance our business. We have recently acquired or invested in a number of companies and will likely continue to do so in the future. For a further discussion of our recent acquisitions, see Note Eleven to Consolidated Financial Statements, Part II, Item 8, incorporated here by reference. We may not achieve the desired benefits of our acquisitions and investments. For example, we may be unable to successfully assimilate an acquired company's management team, business infrastructure, company culture, or other important factors. Also, dedication of additional resources to handle integration the 32 integration of new companies could temporarily divert attention from other important business. Such acquisitions could also result in costs, liabilities, inherited litigation and other additional expenses that could harm our results of operations and financial condition. With respect to our investments in other companies, we may not realize a return on our investments, or the value of our investments may decline if the businesses in which we invest are not successful. These companies include start-ups seeking to develop technology that has not been tested in the marketplace. Such companies typically have no history of earnings and may lack a seasoned management team and/or a well-defined operating infrastructure. Euro Currency On January 1, 1999, eleven of the fifteen member countries of the European Union established fixed conversion rates between their existing currencies and the Euro. The participating countries adopted the Euro as their common legal currency on that date. A transition period for conversion to this new currency ends on January 1, 2002. To date, there has been no significant impact on our worldwide operations caused by the adoption of the Euro. The introduction and the use of the Euro has not materially affected, and is not expected to affect in the future, our foreign exchange activities, our use of derivatives and other financial instruments, or result in any material cost to us. We will continue to assess the impact of the introduction of the Euro currency. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The information required by this item is incorporated by reference to "MD&A -- Financial Risk Management," Part II, Item 7, incorporated here by reference. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA TABLE OF CONTENTS
PAGE ---- Report of Independent Auditors.............................. 34 Consolidated Balance Sheets as of December 31, 2001 and 2000...................................................... 35 Consolidated Statements of Operations for the Years Ended December 31, 2001, 2000 and 1999.......................... 36 Consolidated Statements of Stockholders' Equity for the Years Ended December 31, 2001, 2000 and 1999.............. 37 Consolidated Statements of Cash Flows for the Years Ended December 31, 2001, 2000 and 1999.......................... 38 Notes to Consolidated Financial Statements.................. 39
33 REPORT OF INDEPENDENT AUDITORS The Board of Directors and Stockholders Sybase, Inc. We have audited the accompanying consolidated balance sheets of Sybase, Inc., as of December 31, 2001 and 2000 and the related consolidated statements of operations, stockholders' equity and cash flows for each of the three years in the period ended December 31, 2001. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Sybase, Inc. at December 31, 2001 and 2000, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 2001, in conformity with accounting principles generally accepted in the United States. /s/ ERNST & YOUNG LLP Walnut Creek, California January 24, 2002 34 CONSOLIDATED BALANCE SHEETS
DECEMBER 31, ----------------------- 2001 2000 ----------- --------- (DOLLARS IN THOUSANDS, EXCEPT SHARE DATA) ASSETS Current assets: Cash and cash equivalents................................. $ 222,793 $235,588 Short-term cash investments............................... 64,216 78,386 ---------- -------- Total cash, cash equivalents and short-term cash investments........................................... 287,009 313,974 Restricted cash........................................... 3,426 -- Accounts receivable, less allowance for doubtful accounts of $19,706 (2000 -- $22,313).................................... 185,786 213,224 Deferred income taxes..................................... 16,746 28,594 Prepaid expenses and other current assets................. 21,411 18,321 ---------- -------- Total current assets................................... 514,378 574,113 Long-term cash investments.................................. 56,151 40,638 Property, equipment and improvements, net................... 76,150 59,296 Deferred income taxes....................................... 25,208 19,020 Capitalized software, net................................... 53,589 33,794 Goodwill and other purchased intangibles, less accumulated amortization of $182,157 (2000 -- $96,459)................ 375,269 147,513 Other assets................................................ 32,497 40,666 ---------- -------- Total assets........................................... $1,133,242 $915,040 ========== ======== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable.......................................... $ 14,179 $ 16,094 Accrued compensation and related expenses................. 44,530 55,237 Accrued income taxes...................................... 37,485 38,679 Other accrued liabilities................................. 115,448 99,641 Deferred revenue.......................................... 194,165 206,976 ---------- -------- Total current liabilities.............................. 405,807 416,627 ---------- -------- Other liabilities........................................... 5,887 5,795 Minority interest........................................... 5,029 1,866 Commitments and contingent liabilities Stockholders' equity: Preferred stock, $0.001 par value, 8,000,000 shares authorized; none issued or outstanding................. -- -- Common stock, $0.001 par value; 200,000,000 shares authorized; 105,113,402 shares issued and 98,725,140 shares outstanding (2000 -- 90,546,392 shares issued and 87,656,460 shares outstanding)..................... 105 91 Additional paid-in capital................................ 925,709 582,972 Accumulated deficit....................................... (68,723) (6,940) Accumulated other comprehensive loss...................... (27,994) (22,305) Cost of 6,388,262 shares of treasury stock (2000 -- 2,889,932 shares)...................................... (107,175) (63,066) Unearned stock compensation............................... (5,403) -- ---------- -------- Total stockholders' equity........................... 716,519 490,752 ---------- -------- Total liabilities and stockholders' equity........ $1,133,242 $915,040 ========== ========
See accompanying notes. 35 CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, --------------------------------- 2001 2000 1999 --------- --------- --------- (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) Revenues: License fees.............................................. $389,038 $468,501 $421,645 Services.................................................. 537,048 491,957 449,988 -------- -------- -------- Total revenues......................................... 926,086 960,458 871,633 Costs and expenses: Cost of license fees...................................... 45,695 45,120 46,241 Cost of services.......................................... 238,942 245,837 217,053 Sales and marketing....................................... 331,237 345,149 310,774 Product development and engineering....................... 125,404 126,689 136,272 General and administrative................................ 76,885 67,267 68,876 Amortization of goodwill and other purchased intangibles............................................ 55,859 32,730 13,920 In-process research and development....................... 18,500 8,000 -- Stock compensation expense................................ 1,334 -- -- Cost (reversal) of restructuring.......................... 48,751 (791) (8,528) -------- -------- -------- Total costs and expenses............................... 942,607 870,001 784,608 -------- -------- -------- Operating income (loss)..................................... (16,521) 90,457 87,025 Interest income............................................. 16,952 17,857 13,626 Interest expense and other income, net...................... 577 (822) 147 Minority interest........................................... (30) 94 -- -------- -------- -------- Income before income taxes.................................. 978 107,586 100,798 Provision for income taxes.................................. 26,500 35,461 38,303 -------- -------- -------- Net income (loss)...................................... $(25,522) $ 72,125 $ 62,495 ======== ======== ======== Basic net income (loss) per share........................... $ (0.27) $ 0.82 $ 0.76 ======== ======== ======== Shares used in computing basic net income (loss) per share..................................................... 94,592 87,711 81,817 ======== ======== ======== Diluted net income (loss) per share......................... $ (0.27) $ 0.78 $ 0.74 ======== ======== ======== Shares used in computing diluted net income (loss) per share..................................................... 94,592 92,150 84,156 ======== ======== ========
See accompanying notes. 36 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
THREE YEARS ENDED DECEMBER 31, 2001 -------------------------------------------------- COMMON STOCK ----------------------- ADDITIONAL OUTSTANDING PAID-IN ACCUMULATED SHARES PAR VALUE CAPITAL DEFICIT ----------- --------- ---------- ----------- (DOLLARS AND SHARES IN THOUSANDS) Balances at December 31, 1998........................ 81,169 $ 82 $416,501 $(102,471) Common stock issued and treasury stock reissued under stock option and stock purchase plans.............. 4,683 1 7,951 (8,061) Acquisition of treasury stock....................... (4,931) -- -- -- Tax benefit of exercise of stock options............... -- -- 7,900 -- ------ ---- -------- --------- Subtotal...................... 80,921 83 432,352 (110,532) Net income.................... -- -- -- 62,495 Foreign currency translation adjustments................. -- -- -- -- Comprehensive income.......... ------ ---- -------- --------- Balances at December 31, 1999........................ 80,921 83 432,352 (48,037) Common stock issued in connection with business combinations................ 7,594 8 144,057 -- Common stock issued and treasury stock reissued under stock option and stock purchase plans.............. 3,073 -- 44 (31,028) Acquisition of treasury stock....................... (3,932) -- -- -- Tax benefit of exercise of stock options............... -- -- 6,519 -- ------ ---- -------- --------- Subtotal...................... 87,656 91 582,972 (79,065) Net income.................... -- -- -- 72,125 Foreign currency translation adjustments................. -- -- -- -- Comprehensive income.......... ------ ---- -------- --------- Balances at December 31, 2000........................ 87,656 91 582,972 (6,940) ------ ---- -------- --------- Common stock issued in connection with business combinations................ 14,567 14 336,124 -- Common stock issued and treasury stock reissued under stock option and stock purchase plans.............. 2,494 -- 3 (27,143) Treasury stock reissued under restricted stock option plan........................ 384 5,571 (9,118) Acquisition of treasury stock....................... (6,376) -- -- -- Amortization of unearned stock compensation................ -- -- -- Tax benefit of exercise of stock options............... -- -- 1,039 -- ------ ---- -------- --------- Subtotal...................... 98,725 105 925,709 (43,201) Net loss...................... -- -- -- (25,522) Foreign currency translation adjustments................. -- -- -- -- Unrealized gains/(losses) on marketable securities....... -- -- -- -- Comprehensive loss............ ------ ---- -------- --------- Balances at December 31, 2001........................ 98,725 $105 $925,709 $ (68,723) ====== ==== ======== ========= THREE YEARS ENDED DECEMBER 31, 2001 --------------------------------------------------- ACCUMULATED OTHER UNEARNED COMPREHENSIVE TREASURY STOCK LOSS STOCK COMPENSATION TOTAL ------------- --------- ------------ -------- (DOLLARS AND SHARES IN THOUSANDS) Balances at December 31, 1998........................ $ (9,702) $ (3,338) -- $301,072 Common stock issued and treasury stock reissued under stock option and stock purchase plans.............. -- 32,133 -- 32,024 Acquisition of treasury stock....................... -- (60,657) -- (60,657) Tax benefit of exercise of stock options............... -- -- -- 7,900 -------- --------- ------- -------- Subtotal...................... (9,702) (31,862) -- 280,339 Net income.................... -- -- -- 62,495 Foreign currency translation adjustments................. (6,724) -- -- (6,724) -------- Comprehensive income.......... 55,771 -------- --------- ------- -------- Balances at December 31, 1999........................ (16,426) (31,862) -- 336,110 Common stock issued in connection with business combinations................ -- -- -- 144,065 Common stock issued and treasury stock reissued under stock option and stock purchase plans.............. -- 57,937 -- 26,953 Acquisition of treasury stock....................... -- (89,141) -- (89,141) Tax benefit of exercise of stock options............... -- -- -- 6,519 -------- --------- ------- -------- Subtotal...................... (16,426) (63,066) -- 424,506 Net income.................... -- -- -- 72,125 Foreign currency translation adjustments................. (5,879) -- -- (5,879) -------- Comprehensive income.......... 66,246 -------- --------- ------- -------- Balances at December 31, 2000........................ (22,305) (63,066) -- 490,752 -------- --------- ------- -------- Common stock issued in connection with business combinations................ -- -- (1,166) 334,972 Common stock issued and treasury stock reissued under stock option and stock purchase plans.............. -- 53,665 -- 26,525 Treasury stock reissued under restricted stock option plan........................ -- 9,156 (5,571) 38 Acquisition of treasury stock....................... -- (106,930) (106,930) Amortization of unearned stock compensation................ -- 1,334 1,334 Tax benefit of exercise of stock options............... -- -- -- 1,039 -------- --------- ------- -------- Subtotal...................... (22,305) (107,175) (5,403) 747,730 Net loss...................... -- -- -- (25,522) Foreign currency translation adjustments................. (6,257) -- -- (6,257) Unrealized gains/(losses) on marketable securities....... 568 -- -- 568 -------- Comprehensive loss............ (31,211) -------- --------- ------- -------- Balances at December 31, 2001........................ $(27,994) $(107,175) $(5,403) $716,519 ======== ========= ======= ========
See accompanying notes. 37 CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, --------------------------------- 2001 2000 1999 --------- --------- --------- (DOLLARS IN THOUSANDS) Cash and cash equivalents, beginning of year.............. $ 235,588 $ 250,103 $ 224,665 CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss)....................................... (25,522) 72,125 62,495 Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization........................ 136,482 107,879 90,009 Write-off of in-process research and development..... 18,500 8,000 -- Write-off of assets in restructuring................. 3,188 -- (883) Minority interest in income (loss) of subsidiaries... 30 (94) -- (Gain) Loss on disposal of assets.................... (962) 754 3,176 Deferred income taxes................................ (1,563) (6,551) (9) Tax benefit from exercise of stock options........... 1,039 6,519 7,900 Amortization of deferred stock-based compensation.... 1,334 -- -- Changes in assets and liabilities: Accounts receivable................................ 58,184 (31,633) 16,051 Other current assets............................... 4,163 (3,397) (7,110) Accounts payable................................... (8,687) 4,411 (4,398) Accrued compensation and related expenses.......... (19,794) (3,783) 8,564 Accrued income taxes............................... (1,422) 19 13,517 Other accrued liabilities.......................... (44,127) (2,234) (8,347) Deferred revenues.................................. (28,054) 19,117 (3,308) Other liabilities.................................. 305 (34) 1,066 --------- --------- --------- Net cash provided by operating activities................. 93,094 171,098 178,723 CASH FLOWS FROM INVESTING ACTIVITIES: Increase in restricted cash............................. (3,426) -- -- Purchases of available-for-sale cash investments........ (119,745) (128,668) (124,541) Maturities of available-for-sale cash investments....... 82,497 81,149 39,164 Sales of available-for-sale cash investments............ 66,768 29,291 7,529 Business combinations, net of cash acquired............. 27,166 (33,573) (8,155) Purchases of property, equipment and improvements....... (38,985) (30,398) (27,952) Proceeds from sale of fixed assets...................... 568 154 11,109 Capitalized software development costs.................. (35,783) (20,210) (18,744) (Increase) decrease in other assets..................... (1,971) (20,778) 3,561 --------- --------- --------- Net cash used for investing activities.................... (22,911) (123,033) (118,029) CASH FLOWS FROM FINANCING ACTIVITIES: Decrease in other current liabilities................... -- -- (1,431) Minority Interest....................................... 3,133 1,960 -- Net proceeds from the issuance of common stock and reissuance of treasury stock......................... 28,401 30,049 32,024 Purchases of treasury stock............................. (106,930) (89,141) (60,657) --------- --------- --------- Net cash used for financing activities.................... (75,396) (57,132) (30,064) Effect of exchange rate changes on cash................... (7,582) (5,448) (5,192) --------- --------- --------- Net increase (decrease) in cash and cash equivalents...... (12,795) (14,515) 25,438 Cash and cash equivalents, end of year.................... 222,793 235,588 250,103 --------- --------- --------- Cash investments, end of year............................. 120,367 119,024 102,796 Total cash, cash equivalents and cash investments, end of year.................................................... $ 343,160 $ 354,612 $ 352,899 ========= ========= ========= Supplemental disclosures: Interest paid........................................... $ 276 $ 339 $ 282 Income taxes paid....................................... $ 22,702 $ 33,725 $ 16,585
See accompanying notes. 38 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE ONE: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES THE COMPANY Sybase, Inc. (Sybase, or the Company) helps businesses integrate, manage and deliver applications, content and data anywhere they are needed. The Company's software products and professional consulting services provide a comprehensive platform for delivering the integrated solutions businesses need to be successful. Through its Enterprise Portal strategy, Sybase provides solutions that allow businesses to build the e-Business infrastructures that provide their employees, customers, partners and shareholders with a personalized, seamless integration of content, commerce and communities. The Company is organized into five separate business segments, each of which maintains financial accountability for its operating results, dedicated product development and engineering, product marketing, partner relationship management and customer support teams. Our Enterprise Solutions Division (ESD) delivers products, technical support and professional services required to develop and maintain a variety of operational systems including e-Business infrastructures that allow enterprises to integrate external data, events and applications. iAnywhere Solutions, Inc. (iAS), formerly the Mobile and Embedded Computing Division (MEC), is a subsidiary that provides solutions for delivering enterprise information and applications anywhere business transactions occur, including remote locations and mobile and hand-held platforms. Our e-Business Division (eBD) delivers an end-to-end e-Business platform and enterprise application integration capabilities outside a company's "firewall" and across the supply chain. The Business Intelligence Division (BID) delivers industry specific database management systems, warehouse design tools and central meta data management facilities enabling customers to develop business intelligence solutions that integrate and translate data from multiple sources. Financial Fusion, Inc. (FFI), formerly HFN, is our subsidiary that delivers turnkey Internet banking solutions to financial institutions. PRINCIPLES OF CONSOLIDATION The consolidated financial statements include the accounts of Sybase and its majority owned subsidiaries. All significant intercompany transactions and balances have been eliminated in consolidation. USE OF ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements. Management is also required to make certain judgments that affect the reported amounts of revenues and expenses during the reporting period. Sybase periodically evaluates its estimates including those relating to the allowance for doubtful accounts, capitalized software, investments, intangible assets, income taxes, restructuring, litigation and other contingencies. The Company bases its estimates on historical experience and various other assumptions that are believed to be reasonable based on the specific circumstances, the results of which form the basis for making judgments about the carrying value of certain assets and liabilities that are not readily apparent from other sources. Actual results could differ from these estimates. ACCOUNTS RECEIVABLE AND ALLOWANCE FOR DOUBTFUL ACCOUNTS Accounts receivable consist primarily of amounts due to the Company from its normal business activities. The Company maintains an allowance for doubtful accounts to reflect the expected uncollectibility of accounts receivable based on past collection history and specific risks identified in the portfolio. If the financial condition of the Company's customers were to deteriorate resulting in an impairment of their ability to make payments, or if payments from customers were to be significantly delayed, additional allowances might be required. 39 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) CAPITALIZED SOFTWARE The Company capitalizes software development costs in accordance with Statement of Financial Accounting Standards (SFAS) No. 86, "Accounting for Costs of Computer Software to be Sold, Leased or Otherwise Marketed," under which certain software development costs incurred subsequent to the establishment of technological feasibility may be capitalized and amortized over the estimated lives of the related products. The Company determines technological feasibility to be established upon the internal release of a working model or a detailed program design as specified by SFAS 86. Upon the general release of the product to customers, development costs for that product are amortized over periods not exceeding three years, based on the estimated economic life of the product. Capitalized software costs amounted to $154.9 million and $117.5 million, at December 31, 2001 and 2000, respectively, and related accumulated amortization was $101.4 million, and $83.7 million, respectively. Software amortization charges included in cost of license fees were $17.8 million, $22.4 million and $20.0 million for 2001, 2000 and 1999, respectively. SFAS 86 also requires that the unamortized capitalized costs of a computer software product be compared to the net realizable value of such product at each reporting date. To the extent the unamoritzed capitalized cost exceeds the net realizable value of a software product based upon its estimated future gross revenues reduced by estimated future costs of completing and disposing of the product, the excess is written off. If the estimated future gross revenue associated with certain of our software products were to be reduced, write-offs of capitalized software costs might be required. PROPERTY, EQUIPMENT AND IMPROVEMENTS Property, equipment and improvements are stated at cost less accumulated depreciation. Major renewals and improvements are capitalized, and minor replacements, maintenance and repairs are charged to current operations. Depreciation and amortization are computed using the straight-line method over the estimated useful lives of the assets, while leasehold improvements are amortized over the shorter of the estimated useful life of the asset or the associated lease term. The Company evaluates its long-lived assets in accordance with Financial Accounting Standards Board (FASB) SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of," which requires impairment losses to be recorded on long-lived assets used in operations, such as property, equipment and improvements, and intangible assets, when indicators of impairment are present and the undiscounted cash flows estimated to be generated by those assets are less than the carrying amount of the assets. GOODWILL AND OTHER PURCHASED INTANGIBLE ASSETS Intangible assets, which have generally resulted from business combinations accounted for as purchases (Note Eleven), are recorded at amortized cost. Amortization is computed using the straight-line method over periods of three to ten years. Management periodically reviews the carrying amounts of the Company's intangible assets for indications of impairment in accordance with SFAS 121. During the fourth quarter, various restructuring activities as well as the overall economic conditions signaled an indication of impairment. The Company then analyzed the value of its various intangible assets using estimates of future undiscounted cash flows prescribed by SFAS 121. Based on this analysis, the Company did not have an impairment of any intangibles assets at December 31, 2001. If the estimated future undiscounted cash flows were reduced, an impairment write-off under SFAS 121 might result. In June 2001, FASB issued Statements of Financial Accounting Standards No. 141, "Business Combinations," effective for fiscal years beginning after December 15, 2001. SFAS 141 requires business combinations initiated after June 30, 2001 to be accounted for using the purchase method of accounting and broadens the criteria for recording intangible assets separate from goodwill. The provisions of this statement are not expected to have a significant impact on the Company's financial condition or operating results. In June 2001, the FASB issued Statements of Financial Accounting Standards No. 142, "Goodwill and Other Intangible Assets," effective for fiscal years beginning after December 15, 2001. Under SFAS 142, 40 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) goodwill and intangible assets deemed to have indefinite lives will no longer be amortized but will be subject to annual impairment tests. Other intangible assets will continue to be amortized over their useful lives. SFAS 142 also requires that goodwill be tested for impairment at the reporting unit level (generally the Sybase operating segments) at adoption and at least annually thereafter, utilizing a two-step methodology. The initial step requires the Company to determine the fair value of each reporting unit and compare it to the carrying value, including goodwill, of such unit. If the fair value exceeds the carrying value, no impairment loss would be recognized. However, if the carrying value of the reporting unit exceeds its fair value, the goodwill of this unit may be impaired. The amount, if any, of the impairment would then be measured in the second step. The Company will apply the new rules on accounting for goodwill and other intangible assets beginning in the first quarter of 2002. The Company did not acquire any goodwill or other intangible assets between June 30, 2001 and December 31, 2001. The Company performed, under SFAS 142, the first of the required impairment tests of goodwill and indefinite-lived intangible assets as of January 1, 2002. That test indicated that the carrying values of certain reporting units exceeded their estimated fair values, as determined utilizing various valuation techniques including discounted cash flow and comparative market analysis. Thereafter, given the indication of a potential impairment, the Company completed step two of the test. Based on that analysis, the Company will recognize an impairment loss of approximately $150 million in the first quarter of 2002. This loss will be recognized as a cumulative effect of an accounting change. In future years, a reduction of the Company's estimate of fair values associated with certain reporting units could result in a further impairment loss associated with various intangible assets. REVENUE RECOGNITION The Company recognizes revenue in accordance with Statement of Position ("SOP") 97-2, "Software Revenue Recognition," as amended by SOP 98-4 and SOP 98-9, and in certain instances in accordance with SOP 81-1, "Accounting for Performance of Construction-Type and Certain Production-Type Contracts." The Company licenses software under non-cancelable license agreements. License fees revenues are recognized when a non-cancelable license agreement is in force, the product has been shipped, the license fee is fixed or determinable, and collectibility is reasonably assured. If the fee is not fixed or determinable, revenue is recognized as payments become due from the customer. In software arrangements that include rights to multiple software products and/or services, the Company allocates the total arrangement fee among each of the deliverables using the residual method, under which revenue is allocated to undelivered elements based on vendor-specific objective evidence of fair value of such undelivered elements and the residual amounts of revenue are allocated to delivered elements. Fees from licenses sold together with consulting services are generally recognized upon shipment provided that the above criteria are met, payment of the license fees are not dependent upon the performance of the services, and the consulting services are not essential to the functionality of the licensed software. If the services are essential to the functionality of the software, or payment of the license fees are dependent upon the performance of the services, both the software license and consulting fees are recognized under the "percentage of completion" method of contract accounting using labor hours to measure the completion percentage. In order to apply the "percentage of completion" of method, management is required to estimate the number of hours needed to complete a particular project. As a result, recognized revenues and profits are subject to revisions as the contract progresses to completion Sublicense fees are recognized as reported to the Company by its licensees. License fees revenue for certain application development and data access tools is recognized upon direct shipment to the end user or direct shipment to the reseller for the end user. If collectibility is not reasonably assured, revenue is recognized when the fee is collected. 41 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Maintenance and support revenues are recognized ratably over the term of the related agreements, which in most cases is one year. Revenues from consulting services under time and materials contracts and for training are recognized as services are performed. Revenues from other contract services are generally recognized under the percentage-of-completion method. In order to apply the "percentage of completion" method, management is required to estimate the number of hours needed to complete a particular project. As a result, recognized revenues and profits from other contract services are subject to revisions as the contract progresses to completion. BUSINESS COMBINATIONS The Company has accounted for all its recent acquisitions using the purchase method of accounting. In the case of its material acquisitions, the Company based its purchase price allocation and useful life estimates on an analysis performed by an independent third party. See Note Eleven for specific details. FOREIGN CURRENCIES The Company translates the accounts of its foreign subsidiaries using the local foreign currency as the functional currency. For foreign subsidiaries in countries with highly inflationary economies, the accounts are translated as if the U.S. dollar was the functional currency. The assets and liabilities of foreign subsidiaries are translated into U.S. dollars using current exchange rates, and gains and losses from this translation process are credited or charged to the "accumulated other comprehensive loss" account included in stockholders' equity. Foreign currency transaction gains and losses, which historically have not been material, are included in interest expense and other, net in the consolidated statements of operations. In order to reduce the effect of foreign currency fluctuations on its results of operations, the Company hedges its exposure on certain transactional balances that are denominated in foreign currencies through the use of short-term foreign currency forward exchange contracts. For the most part, these exposures consist of intercompany balances between Sybase entities resulting from software license royalties and certain management, research, and administrative services. These exposures are denominated in Canadian, European and Asia Pacific currencies, primarily the Canadian dollar, Yen, Euro and the Hong Kong dollar. These forward exchange contracts are recorded at fair value and the resulting gains or losses, as well as the associated premiums or discounts, are recorded in interest expense and other, net in the consolidated statements of operations and are offset by corresponding gains and losses from foreign exchange contracts on hedged balances. All foreign exchange contracts have a life of approximately 30 days and are marked-to-market at the end each reporting period with unrealized gains and losses included in other income. INCOME TAXES The asset and liability approach is used to account for income taxes by recognizing deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the carrying amounts and the tax base of assets and liabilities. The Company records a valuation allowance to reduce deferred tax assets to the amount that is more likely than not to be realized. The Company has considered future taxable income and ongoing prudent and feasible tax planning strategies in assessing the need for the valuation allowance. If the company were to determine that it would be able to realize its deferred tax asset in the future in excess of its net recorded amount, an adjustment to the deferred tax asset would be made increasing income in the period of such determination. Similarly, if the Company determines that it is unable to realize a portion of its recorded deferred tax asset, an adjustment to the deferred tax asset would be charged to income in the period made. STOCK BASED COMPENSATION SFAS 123, "Accounting for Stock-Based Compensation," encourages, but does not require, companies to record compensation cost for stock based employee compensation plans at fair value. The Company has 42 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) chosen to continue to account for stock based employee compensation using the intrinsic value method prescribed in Accounting Principles Board (APB) Opinion No. 25, "Accounting for Stock Issued to Employees, and Related Interpretations." Accordingly, compensation cost for stock options granted to employees is measured as the excess, if any, of the quoted market price of the Company stock at the date of the grant over the amount an employee must pay to acquire the stock. In April 2000, the FASB issued Interpretation No. 44 (FIN 44), "Accounting for Certain Transactions Involving Stock Compensation: An Interpretation of APB No. 25." The Company has adopted the provisions of FIN 44. The adoption of these provisions did not materially impact the Company's results of operations. Note Seven provides a summary of the pro forma effects on reported net income and earnings per share for 2001, 2000 and 1999 based on the fair value of options and shares granted as prescribed by SFAS 123. NET INCOME (LOSS) PER SHARE Shares used in computing basic and diluted net income (loss) per share are based on the weighted average shares outstanding in each period, excluding treasury stock. Basic net income (loss) per share excludes any dilutive effects of stock options. Diluted net income (loss) per share includes the dilutive effect of the assumed exercise of stock options, warrants and restricted stock using the treasury stock method. However, the effect of outstanding stock options has been excluded from the calculation of diluted net loss per share in 2001, as their inclusion would be antidilutive. Accordingly, the calculation of diluted net loss per share does not include the common stock equivalent effect (using the treasury stock method) of 2,787,807 shares of Common Stock that were granted under outstanding stock options at December 31, 2001. The following shows the computation of basic and diluted net income (loss) per share at December 31:
2001 2000 1999 ------------ ----------- ----------- (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) Net income (loss)................................ $(25,522) $72,125 $62,495 Shares used in computing basic net income (loss) per share...................................... 94,592 87,711 81,817 Effect of dilutive securities -- stock options... (a) 4,439 2,339 Shares used in computing diluted net income (loss) per share............................... 94,592 92,150 84,156 Basic net income (loss) per share................ $ (0.27) $ 0.82 $ 0.76 Diluted net income (loss) per share.............. $ (0.27)(a) $ 0.78 $ 0.74
- --------------- (a) The effect of outstanding stock options is excluded from the calculation of diluted net loss per share, as their inclusion would be antidilutive. COMPREHENSIVE INCOME (LOSS) Comprehensive income (loss) includes net earnings (loss) and other changes to stockholders' equity not reflected in net income (loss). The Company's components of other comprehensive income (loss) consist of foreign currency translation adjustments and unrealized gain/loss on available-for-sale securities. OTHER RECENT ACCOUNTING PRONOUNCEMENTS In June 1998, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards No. 133 "Accounting for Derivative Instruments and Hedging Activities" (SFAS 133). SFAS 133 establishes methods of accounting for derivative financial instruments and hedging activities related to those instruments as well as other hedging activities. In June 1999, the FASB issued Statement No. 137, "Accounting for Derivative Instruments and Hedging Activities -- Deferral of the Effective Date of FASB Statement No. 133," which amended SFAS 133 by deferring the effective date to the 43 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) fiscal year beginning after June 30, 2000. In June 2000, the FASB issued Statement No. 138, "Accounting for Certain Derivative Instruments and Certain Hedging Activities -- an Amendment to FASB Statement No. 133" which amended SFAS 133 with respect to four specific issues. The Company was required to adopt SFAS 133 effective January 1, 2001. The adoption of SFAS 133 did not have a material effect on the Company's consolidated financial position or results of operations. In August 2001, the FASB issued SFAS 144, "Accounting for the Impairment or Disposal of Long-lived Assets." SFAS 144 establishes a single accounting model, based on the framework established in SFAS 121, for long-lived assets to be disposed of by sale. The statement is effective for financial statements issued for fiscal years beginning after December 15, 2001. The provisions of this statement are not expected to have a significant impact on the Company's financial condition or operating results. In July 2000, the Emerging Issues Task Force issued EITF 00-15, "Classification in the Statement of Cash Flows of the Income Tax Benefit Realized by a Company upon Employee Exercise of a Nonqualified Stock Option." EITF 00-15 states that the income tax benefit realized by the company upon employee exercise should be classified in the operating section of the statement of cash flows. The EITF is effective for all quarters ending after July 31, 2000. Previously reported amounts have been reclassified to conform to the current year's presentation. In November 2001, the FASB issued a Staff Announcement Topic No. D-103 (Topic D-103), "Income Statement Characterization of Reimbursements Received for 'Out-of-Pocket' Expenses Incurred." Topic D-103 establishes that reimbursements received for out-of-pocket expenses should be characterized as revenue in the statement of operations. The Company is required to adopt the guidance effective January 1, 2002. Sybase currently records out-of-pocket expense reimbursements as a reduction to operating expenses. Beginning in January 1, 2002, these reimbursements will be recorded as service fees revenue, resulting in increased revenue and increased operating expenses. Comparative financial statements for prior year information will be reclassified to conform to the new presentation. The application of Topic D-103 will not result in any impact to operating or net income in any past or future periods. The provision of Topic D-103 is not expected to have a material impact on the Company's financial condition or operating results. NOTE TWO: FINANCIAL INSTRUMENTS CASH, CASH EQUIVALENTS AND CASH INVESTMENTS Cash and cash equivalents consist of highly liquid investments that consist principally of taxable, short-term money market instruments with insignificant interest rate risk and original maturities of three months or less at the time of purchase and demand deposits with financial institutions. Cash equivalents are stated at amounts that approximate fair value based on quoted market prices. Cash investments consist principally of commercial paper, corporate bonds, U.S. Government bonds and taxable municipal bonds with maturities between 90 days and up to two years and are stated at amounts that approximate fair value, based on quoted market prices. No individual investment security equaled or exceeded two percent of total assets. In accordance with Statement of Financial Accounting Standards No. 115, "Accounting for Certain Investments in Debt and Equity Securities," (SFAS 115) management determines the appropriate classification of debt and equity securities at the time of purchase and re-evaluates such designation as of each balance sheet date. At December 31, 2001, the Company has classified all of its debt and equity securities as available-for-sale pursuant to SFAS 115. Such securities are recorded at fair value and unrealized holding gains and losses, net of the related tax effect, if any, are not reflected in earnings but are reported as a separate component of other comprehensive income (loss) until realized. Unrealized gains and losses at December 31, 2000 were not significant. Accordingly, the Company did not make a provision for such amounts in its December 31, 2000 consolidated financial statements. Realized gains and losses are determined on the specific identification method and are reflected in income. 44 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) At December 31, cash equivalents and amortized cost of investments in marketable securities and their approximate fair values are as follows:
AMORTIZED UNREALIZED UNREALIZED FAIR MARKET COST GAINS (LOSSES) VALUE --------- ---------- ---------- ----------- (DOLLARS IN THOUSANDS) December 31, 2001: Cash and cash equivalents......................... $222,793 $ -- $ -- $222,793 Short-term cash investments (maturities of one year or less)................................... 63,773 444 (1) 64,216 Long-term cash investments (maturities over one year)........................................... 55,721 534 (104) 56,151 -------- ---- ----- -------- $342,287 $978 $(105) $343,160 ======== ==== ===== ======== December 31, 2000: Cash and cash equivalents......................... $235,588 $ -- $ -- $235,588 Short-term cash investments (maturities of one year or less)................................... 78,386 -- -- 63,773 Long-term cash investments (maturities over one year)........................................... 40,638 -- -- 55,721 -------- ---- ----- -------- $354,612 $ -- $ -- $354,612 ======== ==== ===== ========
RESTRICTED CASH The Company had $3.4 million in restricted cash set aside for leasehold improvements associated with the move to the new Dublin, California facility. FOREIGN CURRENCY FORWARD EXCHANGE CONTRACTS At December 31, 2001, the Company had outstanding forward contracts, all having maturities of approximately 30 days, to exchange various foreign currencies for U.S. dollars in the amounts of $1.4 million, and to exchange U.S. dollars and Euros into various foreign currencies in the amounts of $15.5 million and $20.7 million, respectively. At December 31, 2000, the Company had outstanding forward exchange contracts, all having maturities of approximately 30 days, to exchange various foreign currencies for U.S. dollars in the amounts of $5.7 million and to exchange U.S. dollars and Euros into various foreign currencies in the amounts of $9.7 million and $21.4 million, respectively. Neither the cost nor the fair value of these foreign currency forward contracts was material at December 31, 2001 or 2000. All foreign currency forward contracts are marked-to-market at the end each reporting period with unrealized gains and losses included in other income. One of two major U.S. multinational banks is counter party to all of these contracts during both 2001 and 2000. NOTE THREE: PROPERTY, EQUIPMENT AND IMPROVEMENTS
ESTIMATED USEFUL 2001 2000 LIVES (DOLLARS IN THOUSANDS) --------- --------- ---------- Computer equipment and software........................... $ 269,664 $ 245,403 3 years Furniture and fixtures.................................... 78,989 76,775 5 years Leasehold improvements.................................... 50,634 46,659 lease term --------- --------- 399,287 368,837 Less accumulated depreciation............................. (323,137) (309,541) --------- --------- Net property, equipment and improvements.................. $ 76,150 $ 59,296 ========= =========
45 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Deprecation expense amounted to $39.8 million, $43.5 million and $54.2 million in 2001, 2000 and 1999, respectively. NOTE FOUR: GOODWILL AND OTHER PURCHASED INTANGIBLES
2001 2000 (DOLLARS IN THOUSANDS) --------- -------- Goodwill.................................................... $ 428,726 $190,473 Purchase technology......................................... 95,200 29,000 Covenant not to compete..................................... 4,500 4,500 Customer lists.............................................. 20,000 20,000 Assembled workforce......................................... 9,000 -- --------- -------- 557,426 243,973 Accumulated amortization.................................... (182,157) (96,459) --------- -------- Net goodwill and other purchased intangibles................ $ 375,269 $147,513 ========= ========
Goodwill is generally amortized over a period of 2 to 8 years; purchased technology is generally amortized over a period of 4 to 7 years; covenant not to compete is generally amortized over a period of 7 years; customer lists are generally amortized over a period of 10 years; assembled workforce is generally amortized over a period of 6 years. NOTE FIVE: OTHER ASSETS Other assets consist of the following (in thousands):
2001 2000 ------- ------- Deposits.................................................... $23,582 $21,517 Other....................................................... 8,915 19,149 ------- ------- $32,497 $40,666 ======= =======
During 2000, the Company made an $18.0 million security deposit on a 15-year non-cancelable lease for the Dublin, California facility (Note Six). NOTE SIX: LEASE OBLIGATIONS AND OTHER LIABILITIES AND COMMITMENTS The Company leases, or has committed to lease, certain office facilities and certain furniture and equipment under operating leases expiring through 2017, which generally require Sybase to pay operating costs, including property taxes, insurance and maintenance. These facility leases generally contain renewal options and provisions adjusting the lease payments based upon changes in the consumer price index, increases in real estate taxes and operating expenses or in fixed increments. Rent expense is reflected on a straight-line basis over the term of the lease. Capital lease obligations incurred for equipment acquisitions have not been material. On January 28, 2000, the Company entered into a 15-year non-cancellable lease of a new facility built in Dublin, California. The company began fully occupying the Dublin property in February 2002. Payments under this lease commenced on December 21, 2001. The Company has the option to renew the lease for up to two five-year extensions, subject to certain conditions. The lease provides for 4 percent yearly increases in the base rent, commencing on the month following the anniversary of the first completion date and thereafter on each anniversary date of the adjustment date. The lease generally requires Sybase to pay operating costs, including property taxes, insurance and maintenance in addition to ordinary operating expenses (such as utilities). The Company has not entered into an agreement that allows for purchase of the facilities at the end of the initial lease or at the end of either five-year lease extension. 46 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) In September 1999, the Company sold its facility in Concord, Massachusetts and simultaneously entered into a sales-leaseback agreement. Under the terms of this agreement, the Company entered into a seven-year operating lease, which was amended in June 1, 2001 to extend the lease term an additional six years. The termination date of this lease is October 31, 2012. The sales price of $5.3 million resulted in a gain of $2.8 million, which is being amortized on a straight-line basis over the original lease period. Future minimum lease payments under noncancellable operating leases having initial terms in excess of one year as of December 31, 2001 are as follows (dollars in thousands): 2002........................................................ $ 52,928 2003........................................................ 43,414 2004........................................................ 37,717 2005........................................................ 31,488 2006........................................................ 31,087 Thereafter.................................................. 221,233 -------- Total minimum lease payments*............................... $417,867 ========
- --------------- * Minimum payments have not been reduced by minimum sublease rentals of $10.8 million due in the future under noncancellable subleases. The following schedule shows the composition of total rental expense for all operating leases except those with terms of a month or less that were not renewed (dollars in thousands):
YEAR ENDING DECEMBER 31, --------------------------- 2001 2000 1999 ------- ------- ------- Minimum rentals......................................... $39,382 $36,361 $31,507 Less: sublease rentals.................................. 3,789 4,173 3,779 ------- ------- ------- $35,593 $32,188 $27,728 ======= ======= =======
At December 31, 2001, the Company had outstanding letters of credit in the amount of $0.4 million. NOTE SEVEN: STOCKHOLDERS' EQUITY Under the Company's stockholder rights plan, each stockholder receives one right to purchase one one-thousandth of a share of Series A Participating Preferred Stock (a Right) for each share of Common Stock owned by the stockholder. Holders of the Rights are entitled to purchase for $250.00 one one-thousandth of one share of the Company's Series A Participating Preferred Stock in certain limited circumstances involving acquisitions of, or offers for, 15 percent or more of the Company's Common Stock. After any such acquisition is completed, each Right entitles its holder to purchase for $250.00 an amount of Common Stock of the Company, or in certain circumstances securities of the acquirer, having a then current market value of two times the exercise price of the Right. In connection with the stockholder rights plan, the Company has designated 200,000 shares of its 8,000,000 shares of authorized but unissued Preferred Stock as "Series A Participating Preferred Stock." Each one one-thousandth of each share of Series A Participating Preferred Stock will generally be afforded economic rights similar to one share of the Company's Common Stock. The Rights are redeemable for a specified period at a price of $0.01 per Right and expire in March 2002. RESTRICTED STOCK GRANTS During the year ended December 31, 2001, the Company issued an aggregate of 383,667 shares of its Common Stock as restricted stock under the 1996 Stock Plan to certain senior executives at a price of $0.10 per share. All of these restricted shares were outstanding at December 31, 2001 and are subject to a right to purchase by the Company. The repurchase right lapses over periods of three to four years. 47 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) STOCK OPTION PLANS Pursuant to the terms of the Company's 1988 Stock Plan (1988 Stock Plan), an aggregate of 17,930,480 shares of Common Stock has been issued or reserved for issuance at December 31, 2001 upon the exercise of options granted to qualified employees and consultants of the Company. The Board of Directors, directly or through committees, administers the Plan and establishes the terms of option grants. The exercise price per share of all incentive stock options granted under the 1988 Stock Plan must be at least equal to the fair market value of the shares at the date of the grant. The exercise price of all nonstatutory options granted under the 1988 Stock Plan must be at least 85% of the fair market value of the Common Stock on the date granted. Only employees are eligible to receive nonstatutory option grants. Options granted prior to January 1, 1997 expire ten years from the grant date, or one month after termination of employment, or six months after death or permanent disability of the optionee. Options granted subsequent to January 1, 1997 expire ten years from the grant date, or three months after termination of employment, or two years after death, or one year after permanent disability of the optionee. Options in all of these cases are exercisable to the extent vested. Vesting generally occurs at the rate of 12.5 percent after 6 months and the balance in equal installments over the following 42 months. The 1988 Stock Plan expired in June 1998, in accordance with its terms. As of that time, no further options were granted under the 1988 Stock Plan, but optionees are able to exercise their vested options before those options expire. All unexercised options are cancelled upon expiration. As of December 31, 2001, there were 4,140,340 unexercised options outstanding under the 1988 Stock Plan. Pursuant to the Company's 1996 Stock Plan (1996 Stock Plan), at December 31, 2001, an aggregate of 16,727,000 shares of Common Stock has been issued or reserved for issuance upon the exercise of options granted to qualified employees and consultants of the Company. The Board of Directors, directly or through committees, administers the Plan and establishes the terms of option grants. The exercise price per share of all incentive stock options granted under the Plan must be at least equal to the fair market value of the shares at the date of the grant. The exercise price of all nonstatutory stock options granted under the 1996 Stock Plan must be at least 85% of the fair market value of the Common Stock on the date granted. Options generally expire ten years from the grant date, or three months after termination of employment, or two years after death, or one year after permanent disability. Options are exercisable to the extent vested. Vesting generally occurs at the rate of 12.5 percent after 6 months and the balance in equal installments over the following 42 months. Pursuant to the 1999 Nonstatutory Stock Plan (1999 Stock Plan), at December 31, 2001, an aggregate of 7,000,000 shares of Common Stock has been issued or reserved for issuance upon the exercise of options granted to qualified employees and consultants of the Company. Employees (i) who are officers of the Company within the meaning of Section 16 of the Securities Exchange Act of 1934, or (ii) who hold the title of vice president or above, are not eligible to receive options under the 1999 Stock Plan. The Board of Directors, directly or through committees, administers the Plan and establishes the terms of option grants. The exercise price of all stock options granted under the 1999 Stock Plan must be at least 85% of the fair market value of the Common Stock on the date granted. Options expire on terms set forth in the grant notice (generally with 10 years from the grant date), or three months after termination of employment, or two years after death, or one year after permanent disability. Options are exercisable to the extent vested. Vesting occurs at various rates and over various time periods. An aggregate of 700,000 shares of Common Stock has been issued or reserved for issuance under the 1992 Director Option Plan, as amended, (the 1992 Director Plan) as of December 31, 2001. Options under the 1992 Director Plan may be granted only to nonemployee directors. The exercise price of all options granted under the 1992 Director Plan must be the fair market value of the shares at the date of grant. Options expire in ten years from the date of grant and vest ratably over four years from the grant date. The 1992 Director Plan expired in February 2002, and no further options are available for grant under the 1992 Director Plan, but optionees are able to exercise their vested options before those options expire. 48 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) An aggregate of 300,000 shares of Common Stock has been issued or reserved for issuance under the 2001 Director Option Plan (the 2001 Director Plan) as of December 31, 2001. All grants of options under the 2001 Director Plan are automatic and nondiscretionary and may be granted only to nonemployee directors. The exercise price of all options granted under the 2001 Director Plan must be the fair market value of the shares at the date of grant. Options expire in ten years from the date of grant and vest ratably over four years from the grant date. Price data and activity for the Company's option plans, including options assumed by the Company in mergers with other companies (adjusted for the merger exchange ratio) are summarized as follows:
WEIGHTED AVERAGE OUTSTANDING OPTIONS EXERCISE PRICE NUMBER OF SHARES PER SHARE ------------------- ---------------- Balance at December 31, 1998........................ 12,037,963 $ 7.56 Granted............................................. 7,706,380 10.44 Exercised........................................... (3,398,910) 6.87 Cancelled........................................... (3,251,087) 7.92 ---------- Balance at December 31, 1999........................ 13,094,346 $ 9.34 Granted............................................. 7,452,447 19.56 Exercised........................................... (2,837,408) 7.06 Cancelled........................................... (2,322,220) 12.97 ---------- Balance at December 31, 2000........................ 15,387,165 $14.16 Granted............................................. 11,268,170 16.40 Exercised........................................... (1,782,592) 9.32 Cancelled........................................... (3,112,298) 23.82 ---------- Balance at December 31, 2001........................ 21,760,445 $14.32 ==========
The total number of shares granted in 2001 includes 2,764,136 options assumed by the Company due to its acquisition of NEN. The total number of shares granted in 2000 includes 1,135,307 options assumed by the Company due to its acquisition of HFN. At December 31, 2001, options to purchase 9,282,006 shares were exercisable at prices ranging from $0.10 to $118.62. Shares available for grant totaled 6,417,307 at December 31, 2001. The income tax benefits that accrue to the Company from exercises of nonqualified stock options and disqualifying dispositions of incentive stock options are recorded as additional paid-in capital. The following table summarizes information about Sybase fixed stock options outstanding at December 31, 2001:
OPTIONS OUTSTANDING ------------------------------------ OPTIONS EXERCISABLE WEIGHTED- --------------------- AVERAGE WEIGHTED- WEIGHTED- REMAINING AVERAGE AVERAGE CONTRACTUAL EXERCISE EXERCISE RANGES OF EXERCISABLE PRICES SHARES LIFE PRICE SHARES PRICE - ---------------------------- ---------- ----------- --------- --------- --------- $ 0.10 to $ 10.10..................... 8,115,192 7.95 $ 8.31 3,210,022 $ 7.26 $10.38 to $ 15.52..................... 5,537,756 8.08 $12.71 3,056,763 $11.04 $15.55 to $ 22.56..................... 5,630,204 7.61 $19.64 2,089,970 $19.68 $22.56 to $118.62..................... 2,477,293 8.23 $25.53 925,251 $26.74 ---------- ---- ------ --------- ------ $ 0.10 to $118.62..................... 21,760,445 7.93 $14.32 9,282,006 $13.24 ========== =========
49 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) FFI STOCK OPTION PLANS In February of 2000, the Company established the 2000 FFI Stock Option Plan (2000 FFI Plan) and reserved for issuance an aggregate of 13,325,000 shares of Common Stock upon the exercise of options granted to qualified employees and consultants of FFI, a majority owned subsidiary of the Company, and certain employees of Sybase, Inc. FFI's Board of Directors, directly or through committees, administers the 2000 FFI Plan and establishes the terms of option grants. The exercise price per share of all incentive stock options granted under the 2000 FFI Plan must be at least equal to the fair market value of the shares at the date of the grant. The exercise price of all nonstatutory stock options granted under the 2000 FFI Plan must be at least 85% of the fair market value of the common stock on the date granted. As FFI is not a public company, the fair market value of the shares issued under the plan has been determined by FFI's Board of Directors and supported by a valuation prepared by an independent valuation expert. All options issued under the 2000 FFI Plan were granted at the estimated fair market value of the option at the date of grant. Options expire ten years from the grant date, three months after termination of employment, two years after death or one year after permanent disability. Options are exercisable to the extent vested. Vesting generally occurs at the rate of 12.5 percent after 6 months and the balance in equal installments over the following 42 months. In March 2001, the 2000 FFI Plan was terminated and no further options were granted under the Plan. Optionees holding unexpired options are able to exercise such options before those options expire. At that time, any unexercised options expire and are cancelled. As of December 31, 2001, there were 7,060,268 unexercised options outstanding under the 2000 Plan. In March 2001, FFI established the 2001 FFI Stock Option Plan (2001 FFI Plan) and reserved for issuance an aggregate of 2,000,000 shares of FFI's common stock upon the exercise of options granted to qualified employees and consultants of FFI, and certain employees of Sybase, Inc. FFI's Board of Directors, directly or through committees, administers the 2001 FFI Plan and establishes the terms of option grants. The exercise price per share of all incentive stock options granted under the 2001 FFI Plan must be at least equal to the fair market value of the shares at the date of the grant. The exercise price of all nonstatutory stock options granted under the 2001 FFI Plan must be at least 85% of the fair market value of the common stock on the date granted. As FFI is not a public company, the fair market value of the shares issued under the plan has been determined by FFI's Board of Directors and supported by a valuation prepared by an independent valuation expert in 2000. All options issued during 2001 were granted at the estimated fair market value of the option at the date of grant. Options expire ten years from the grant date, or three months after termination of employment, or two years after death, or one year after permanent disability. Options are exercisable to the extent vested. Vesting occurs at the rate of at least 20 percent per year over 5 years from the date options are granted. Price data and activity for the FFI Plan are summarized as follows:
WEIGHTED AVERAGE OUTSTANDING OPTIONS EXERCISE PRICE NUMBER OF SHARES PER SHARE ------------------- ---------------- Granted............................................. 14,285,220 $5.00 Exercised........................................... (8,754) 5.00 Cancelled........................................... (2,566,692) 5.00 ---------- Balance at December 31, 2000........................ 11,709,774 $5.00 Granted............................................. 1,600,484 $5.00 Cancelled........................................... (4,985,775) 5.00 ---------- Balance at December 31, 2001........................ 8,324,483 $5.00 ==========
At December 31, 2001 there were 3,188,347 shares exercisable under the FFI Plans at a weighted average exercise price of $5.00 per share. The weighted average remaining contractual life of the options outstanding at December 31, 2001 was 8.43 years. 50 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) IAS STOCK OPTION PLAN In March 2001, iAS established the 2001 iAS Stock Option Plan (iAS Plan) and reserved for issuance an aggregate of 11,250,000 shares of iAS common stock upon the exercise of options granted to qualified employees and consultants of iAnywhere Solutions, Inc., a majority owned subsidiary of the Company, and certain employees of Sybase, Inc. iAS's Board of Directors, directly or through committees, administers the iAS Plan and establishes the terms of option grants. The exercise price of all stock options granted under the iAS Plan must be at least 85% of the fair market value of the common stock on the date granted. As iAS is not a public company, the fair market value of the shares issued under the plan has been determined by iAS's Board of Directors and supported by a valuation prepared by the Company. All options issued during 2001 were granted at the estimated fair market value of the option at the date of grant. Options expire ten years from the grant date, or three months after termination of employment, or two years after death, or one year after permanent disability. Options are exercisable to the extent vested. Vesting occurs at the rate of at least 20 percent per year over 5 years from the date options are granted. Price data and activity for the iAS Plan are summarized as follows:
WEIGHTED AVERAGE OUTSTANDING OPTIONS EXERCISE PRICE NUMBER OF SHARES PER SHARE ------------------- ---------------- Granted............................................. 8,397,875 $2.51 Cancelled........................................... (89,000) 2.51 --------- Balance at December 31, 2001........................ 8,308,875 $2.51 =========
The weighted average remaining contractual life of the options outstanding at December 31, 2001 was 9.53 years. EMPLOYEE STOCK PURCHASE PLANS The Company's 1991 Employee Stock Purchase Plan and 1991 Foreign Subsidiary Employee Stock Purchase Plan, as amended, (collectively the ESPP) allow eligible employees to purchase Common Stock through payroll deductions. The ESPP consists of 6-month exercise periods. The shares can be purchased at the lower of 85% of the fair market value of the Common Stock at the first day of each 6-month exercise period or at the last day of each 6-month exercise period. Purchases are limited to 10 percent of an employee's eligible compensation, subject to an annual maximum, as defined in the ESPP. As of December 31, 2001, an aggregate of 11,800,000 shares of Common Stock had been reserved under the ESPP, of which 2,450,686 shares remained available for issuance. Employees purchased 710,312 shares in 2001, 675,118 shares in 2000, and 1,284,250 shares in 1999. PRO FORMA DISCLOSURES OF THE EFFECT OF STOCK BASED COMPENSATION PLANS The Company applies APB Opinion No. 25 and related Interpretations in accounting for grants to employees under its stock based compensation plans, described above. As a result, no compensation cost has been recognized for grants to employees under its fixed stock option plans or its employee stock purchase plan. Compensation cost for the estimated fair value of grants to nonemployee consultants of stock-based compensation has not been material. Had compensation cost been charged to expense for grants to employees under the Company's fixed stock option plans (including the FFI and iAS Plans) and its employee stock purchase plan based on the fair value at the grant dates for awards under those plans, consistent with the 51 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) method encouraged by Statement of Financial Accounting Standards No. 123, the Company's net income/ (loss) and net income/(loss) per share would have been adjusted to the pro forma amounts indicated below:
2001 2000 1999 --------- -------- -------- (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) Net income/(loss) As reported............................................... $(25,522) $72,125 $62,495 Pro forma................................................. $(89,453) $20,573 $35,479 Basic net income/(loss) per share As reported............................................... $ (0.27) $ 0.82 $ 0.76 Pro forma................................................. $ (0.95) $ 0.23 $ 0.43 Diluted net income/(loss) per share As reported............................................... $ (0.27) $ 0.78 $ 0.74 Pro forma................................................. $ (0.95) $ 0.22 $ 0.42
The fair value of each option grant is estimated on the date of the grant using the Black-Scholes option pricing model with the following weighted-average assumptions:
STOCK OPTION PLANS PURCHASE PLANS --------------------- --------------------- 2001 2000 1999 2001 2000 1999 ----- ----- ----- ----- ----- ----- Expected volatility............................. 72.08% 70.93% 68.24% 72.08% 70.93% 68.24% Risk-free interest rates........................ 4.32% 6.18% 5.51% 3.41% 6.18% 4.86% Expected lives (years).......................... 4.25 4.25 4.25 .50 .50 .50 Expected dividend yield......................... -- -- -- -- -- --
The weighted average grant date fair value of options (excluding FFI and iAS options) granted in 2001, 2000 and 1999 was $7.38, $12.81, and $5.98 per share, respectively. The weighted average grant date fair value of the FFI options granted in 2001 and 2000 was $2.92 and $2.97 per share, respectively. The weighted-average grant-date fair value of the iAS options granted in 2001 was $1.46 per share. NOTE EIGHT: INCOME TAXES The Company accounts for income taxes under the liability method. Under this method, deferred tax assets and liabilities are determined based on differences between financial reporting and income tax bases of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. The following is a geographical breakdown of consolidated income (loss) before income taxes (including intercompany royalties and expenses) by income tax jurisdiction (dollars in thousands):
2001 2000 1999 -------- -------- -------- United States........................................ $(81,175) $ 25,674 $ 23,576 Foreign.............................................. 82,158 81,912 77,222 -------- -------- -------- Total................................................ $ 983 $107,586 $100,798 ======== ======== ========
52 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The provisions (credits) for income taxes consist of the following (dollars in thousands):
2001 2000 1999 ------- ------- ------- Federal Current............................................... $ 1,166 $11,542 $ 6,699 Deferred.............................................. (613) (6,935) -- ------- ------- ------- 553 4,607 6,699 State Current............................................... 987 2,888 4,373 Deferred.............................................. (728) 640 -- ------- ------- ------- 259 3,528 4,373 Foreign Current............................................... 25,921 27,071 27,221 Deferred.............................................. (233) 255 10 ------- ------- ------- 25,688 27,326 27,231 ------- ------- ------- Total................................................... $26,500 $35,461 $38,303 ======= ======= =======
The provision for income taxes differs from the amount computed by applying the statutory federal income tax rate to income before income taxes. The sources and tax effects of the differences are as follows (dollars in thousands):
2001 2000 1999 ------- ------- -------- Tax (credit) at U.S. statutory rate.................... $ 344 $37,655 $ 35,279 State tax, net of federal benefit, before valuation allowance............................................ 259 3,528 4,373 Effect of foreign operations........................... (295) (7,277) 4,070 Amortization of intangible assets...................... 25,025 13,875 4,352 Research and development tax credits................... (500) (750) (745) Utilization of net operating loss and credit carryforwards........................................ -- (2,261) (11,941) Effect of valuation allowance.......................... -- (9,725) -- Other.................................................. 1,667 416 2,915 ------- ------- -------- Total.................................................. $26,500 $35,461 $ 38,303 ======= ======= ========
53 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Deferred income taxes result principally from temporary differences between years in the recognition of certain revenue and expense items for financial and tax reporting purposes. Significant components of the Company's net deferred tax assets were as follows at December 31 (dollars in thousands):
2001 2000 -------- -------- Depreciation................................................ $ 19,137 $ 23,163 Deferred revenue............................................ 498 8,950 Accrued expenses............................................ 20,609 18,534 Allowance for doubtful accounts............................. 2,852 5,105 Purchased software.......................................... 1,654 340 Net operating loss carryovers and tax credits Carryforwards............................................. 73,863 23,627 Intangible assets......................................... 11,593 3,938 Other assets................................................ 10,971 6,705 -------- -------- Gross deferred tax asset.................................... 141,177 90,362 Unremitted foreign earnings................................. (18,110) (18,110) Capitalized R&D expenses.................................... (11,032) (14,201) Acquired Intangibles........................................ (19,289) Other liabilities........................................... (1,457) (36) -------- -------- Gross deferred tax liability................................ (49,888) (32,347) Total before valuation allowance............................ 91,289 58,015 Valuation allowance......................................... (49,335) (10,401) -------- -------- Net deferred tax assets..................................... $ 41,954 $ 47,614 Recorded as: Current deferred tax assets............................... $ 16,746 $ 28,594 Noncurrent deferred tax assets............................ 25,208 19,020 -------- -------- $ 41,954 $ 47,614 ======== ========
The valuation allowance increased by $38.9 million in 2001. This movement was primarily the valuation allowance primarily attached to deferred tax assets acquired during the year which are associated with the net operating losses of NEN. The valuation allowance acquired in the NEN acquisition primarily relates to deferred tax assets associated with the net operating losses of New Era of Network. If the associated deferred tax assets are realized, the benefit will reduce goodwill arising from the NEN acquisition rather than future income tax expense. Deferred tax assets relating to carryforwards as of December 31, 2001 include approximately $17.7 million associated with stock option activity for which any subsequently recognized tax benefits will be credited directly to shareholders' equity. As of December 31, 2001, the Company had research and development tax credits of $19.6 million, which expire in years from 2005 through 2021, foreign tax credits of $9.7 million expiring in years from 2002 through 2005, and an asset of $45.9 million associated with certain net operating losses which expire in the years from 2006 and 2021. The Company records benefit of available research and development credits and foreign tax credits before it records the benefit of acquired net operating loss carryforwards existing at the date of acquisition. Realization of the Company's net deferred tax assets is dependent upon the Company generating sufficient taxable income in future years in appropriate tax jurisdictions to obtain benefit from the reversal of 54 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) temporary differences and from tax credit carryforwards. The amount of deferred tax assets considered realizable is subject to adjustment in future periods if estimates of future taxable income are reduced. No provision has been made for income taxes on a portion of the unremitted earnings held by certain of the Company's foreign subsidiaries (approximately $53.4 million at December 31, 2001) since the Company plans to permanently reinvest all such earnings. NOTE NINE: RETIREMENT PLAN The Company maintains a defined contribution pursuant to Section 401(k) of the Internal Revenue Code (the 401(k) Plan) that allows eligible employees to contribute up to 18% of their annual compensation to the Plan, subject to certain limitations. In 2001, the Company matched employee contribution at a rate of 50 cents to the dollar up to the first $3,000 of salary contributed by the employee, with a maximum employer match of $1,500 for the year fully vested. The maximum employer match was $1,500 in 2000 and $1,000 in 1999. The Plan also allows the Company to make discretionary contributions. There were no such discretionary contributions made in 2001, 2000 or 1999. NOTE TEN: SEGMENT AND GEOGRAPHICAL INFORMATION The Company is organized into five separate business segments, each of which maintains financial accountability for its operating results, dedicated product development and engineering, sales and product marketing, partner relationship management and customer support teams. The Enterprise Solutions Division (ESD) delivers products, technical support and professional services required to develop and maintain a variety of operational systems including e-Business infrastructures that allow enterprises to integrate external data, events and applications. iAnywhere Solutions, Inc. (iAS), formerly the Mobile and Embedded Computing Division (MEC), is a subsidiary that provides solutions to deliver enterprise information and applications anywhere business transactions occur, including remote locations and on mobile and hand-held platforms. The e-Business Division (eBD) delivers an end-to-end e-Business platform and enterprise application integration capabilities outside a company's "firewall" and across the supply chain. The Business Intelligence Division (BID) delivers industry specific database management systems, warehouse design tools and central meta data management facilities that enable customers to develop business intelligence solutions that integrate and translate data from multiple sources. Financial Fusion, Inc. (FFI), formerly HFN, is the subsidiary that delivers turnkey Internet banking solutions to financial institutions. The Company reports its iAS and FFI subsidiaries and ESD, eBD and BID divisions as reportable segments in accordance with SFAS 131, "Disclosures about Segments of an Enterprise and Related Information." The Company had four reportable segments in 1999: ESD, MEC, IAD and BID. The FFI segment was added to report the results of HFN which was acquired by the Company in 2000. eBD was created in the second quarter of 2001, and incorporates operations of NEN, certain products previously reported in ESD (primarily the Sybase Enterprise Portal), and certain products previously reported in the former Internet Application Division (IAD) (primarily Enterprise Application Server, PowerBuilder, PowerDesigner and PowerJ(R)). IAD is no longer reported as a separate segment. The Company has restated all earlier periods reported to reflect the segment changes made in the second quarter of 2001. The Company's Chief Operating Decision Maker (CODM), which is the President and Chief Executive Officer, evaluates performance based upon a measure of segment operating profit or loss that includes an allocation of common expenses, but excludes certain unallocated expenses. Segment revenue includes transactions between the segments. These revenues are transferred to the applicable segments less amounts retained, which are intended to reflect the costs incurred by the transferring segment. Allocated common costs and expenses are allocated based on measurable drivers of expense. Unallocated expenses represent corporate expenditures or cost savings that are not specifically allocated to the segments. The Company's CODM does not view segment results below operating profit (loss) before unallocated expenses, and therefore unallocated 55 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) expenses, interest income, interest expense and other, net and the provision for income taxes are not broken out by segment. The Company does not account for, or report to the CODM, its assets or capital expenditures by segment. A summary of the segment financial information reported to the CODM for the year ended December 31, 2001 is presented below (in thousands):
CONSOLIDATED ESD EBD IAS BID FFI ELIMINATION TOTAL -------- -------- ------- -------- -------- ----------- ------------ Revenues: License fees......................... $316,201 $ 21,325 $41,515 $ 3,756 $ 6,241 -- $389,038 Services............................. 487,421 30,557 2,154 1,547 15,369 -- 537,048 -------- -------- ------- -------- -------- -------- -------- Direct revenues from external customers............................ 803,622 51,882 43,669 5,303 21,610 -- 926,086 Intersegment revenues.................. 622 32,350 45,753 17,809 6,495 (103,029) -- -------- -------- ------- -------- -------- -------- -------- Total revenues......................... 804,244 84,232 89,422 23,112 28,105 (103,029) 926,086 Total allocated costs and expenses before amortization of purchased intangibles and write-off of in-process research and development.......................... 656,817 119,576 61,891 35,889 49,574 (103,029) 820,718 -------- -------- ------- -------- -------- -------- -------- Operating income (loss) before amortization of purchased intangibles and write off of in-process research and development...................... 147,427 (35,344) 27,531 (12,777) (21,469) -- 105,368 Amortization of purchased intangibles.......................... 5,518 38,312 41 2,104 21,987 -- 67,962 Write off of in-process research and development.......................... -- 18,500 -- -- -- -- 18,500 -------- -------- ------- -------- -------- -------- -------- Operating income (loss) before unallocated expenses................. 141,909 (92,156) 27,490 (14,881) (43,456) -- 18,906 Unallocated expenses................... 35,427 -------- Operating loss......................... (16,521) Interest income, interest expense and other, net........................... 17,529 Minority Interest...................... (30) -------- Income before income taxes............. $ 978 ========
56 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) A summary of the segment financial information reported to the CODM for the year ended December 31, 2000 is presented below (in thousands):
CONSOLIDATED ESD EBD IAS BID FFI ELIMINATION TOTAL -------- -------- ------- -------- -------- ----------- ------------ Revenues: License fees......................... $389,843 $ 19,647 $49,062 $ 500 $ 9,449 -- $468,501 Services............................. 474,229 613 1,538 1,828 13,749 -- 491,957 -------- -------- ------- -------- -------- ------- -------- Direct revenues from external customers............................ 864,072 20,260 50,600 2,328 23,198 -- 960,458 Intersegment revenues.................. 2,096 24,267 41,445 19,223 5,737 (92,768) -- -------- -------- ------- -------- -------- ------- -------- Total revenues......................... 866,168 44,527 92,045 21,551 28,935 (92,768) 960,458 Total allocated costs and expenses before amortization of purchased intangibles and write-off of in-process research and development.......................... 701,750 67,314 66,515 33,625 49,187 (92,768) 825,623 -------- -------- ------- -------- -------- ------- -------- Operating income (loss) before amortization of purchased intangibles and write off of in-process research and development...................... 164,418 (22,787) 25,530 (12,074) (20,252) -- 134,835 Amortization of purchased intangibles.......................... 8,311 3,773 81 3,983 20,987 -- 37,135 Write off of in-process research and development.......................... -- -- -- -- 8,000 -- 8,000 -------- -------- ------- -------- -------- ------- -------- Operating income (loss) before unallocated expenses................. 156,107 (26,560) 25,449 (16,057) (49,239) -- 89,700 Unallocated expenses................... (757) -------- Operating income....................... 90,457 Interest income, interest expense and other, net........................... 17,035 Minority Interest...................... 94 -------- Income before income taxes............. $107,586 -------- (16,057) ========
57 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) A summary of the segment financial information reported to the CODM for the year ended December 31, 1999 is presented below (in thousands):
ESD EBD IAS BID ELIMINATION CONSOLIDATED TOTAL -------- -------- ------- -------- ----------- ------------------ Revenues: License fees........... $359,667 $ 16,543 $37,244 $ 8,191 -- $421,645 Services............... 449,141 -- 233 614 -- 449,988 -------- -------- ------- -------- ------- -------- Direct revenues from external customers..... 808,808 16,543 37,477 8,805 -- 871,633 Intersegment revenues.... 1,203 14,689 38,814 13,838 (68,544) -- -------- -------- ------- -------- ------- -------- Total revenues........... 810,011 31,232 76,291 22,643 (68,544) 871,633 Total allocated costs and expenses before amortization of purchased intangibles (1).................... 665,720 64,357 55,088 34,082 (68,544) 750,703 -------- -------- ------- -------- ------- -------- Operating income (loss) before amortization of purchased intangibles............ 144,291 (33,125) 21,203 (11,439) -- 120,930 Amortization of purchased intangibles............ 11,027 3,745 48 654 -- 15,474 -------- -------- ------- -------- ------- -------- Operating income (loss) before unallocated expenses............... 133,264 (36,870) 21,155 (12,093) -- 105,456 Unallocated expenses..... 18,431 -------- Operating income......... 87,025 Interest income, interest expense and other, net.................... 13,773 -------- Income before income taxes.................. $100,798 ========
- --------------- (1) Certain previously reported amounts have been reclassified to conform to current period presentation format. The Company operates in one industry segment (the development and marketing of computer software and related services) and markets its products and services internationally through both foreign subsidiaries and distributors located in the United States, Canada, Europe, Asia, Australia, New Zealand, and Latin America. Other includes operations in Asia, Australia, Canada, New Zealand and Latin America. 58 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The following table presents a summary of operating information and certain year-end balance sheet information by geographic region (in thousands):
2001 2000 1999 -------- -------- -------- Revenues: Unaffiliated customers: United States................................... $502,795 $552,452 $504,217 Europe.......................................... 251,570 247,809 231,862 Other........................................... 171,721 160,197 135,554 -------- -------- -------- Total......................................... $926,086 $960,458 $871,633 ======== ======== ======== Long-lived assets, net: United States...................................... $483,680 $221,049 $100,329 Europe............................................. 13,659 11,472 16,150 Other.............................................. 7,668 8,082 11,570 -------- -------- -------- Total........................................... $505,007 $240,603 $128,049 ======== ======== ========
NOTE ELEVEN: BUSINESS COMBINATIONS AND INVESTMENTS On February 20, 2001, the Company agreed to acquire New Era of Networks, Inc. (NEN), a publicly-traded leading e-Business application integration company, in a stock-for-stock transaction valued at $339.3 million, and accounted for as a purchase. The total purchase price was determined as follows:
(IN MILLIONS) Issuance of 14.3 million Sybase shares...................... $318.0 NEN stock options assumed................................... 16.3 Merger legal and accounting costs........................... 5.0 ------ Total Purchase Consideration................................ $339.3 ======
Under the terms of the acquisition, each share of NEN common stock was converted into 0.3878 shares of Sybase Common Stock. The same conversion ratio was used to convert all outstanding NEN stock options to Sybase stock options. The fair value of the common stock issued was based on the average closing price of the Sybase Common Stock on the two days before and after the acquisition was announced on February 20, 2001. The fair value of the NEN options assumed, which were exchanged for cash and Sybase options, was based on the Black-Scholes model using the following assumptions: - Expected life of .25 to 3.5 years - Expected volatility factor of 70.93% - Risk-free interest rate of 6.18% - Expected dividend rate of 0% The estimated excess of the purchase price over the fair value of the net assets acquired is expected to be approximately $311.8 million. This amount is subject to change pending the final analysis of the fair values of the assets acquired and the liabilities assumed. Of the estimated $311.8 million excess, $47.7 was allocated to developed technology, $9.0 million was allocated to assembled workforce, $1.2 million was allocated to stock based compensation, $18.5 million was allocated to in-process research and development and an estimated $235.4 million was allocated to goodwill. This allocation was based on a valuation prepared by an independent 59 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) third-party appraiser. Included in goodwill is $23.2 million that was allocated to goodwill with an offsetting amount allocated to long-term deferred tax liability for the tax effect of the amortization on developed technology and assembled workforce, which is not deductible for tax purposes. The amount allocated to in-process research and development was charged to expense as a non-recurring charge in the second quarter of 2001 since the in-process research and development had not yet reached technological feasibility and had no alternative future uses. During 2001, the amounts allocated to the assembled workforce, the developed technology and the goodwill were amortized on a straight-line basis over periods of 6 years, 4 years and 6 years, respectively. On January 20, 2000, the Company acquired Home Financial Network (HFN), a privately-held Internet financial services company specializing in the development of customized e-Finance Web sites. HFN subsequently was renamed Financial Fusion, Inc. This transaction was accounted for as a purchase. The following unaudited pro forma quarterly financial information presents the combined results of operations of Sybase as if the acquisition of NEN had occurred as of the beginning of 2001 and 2000, and the acquisition of HFN had occurred as of the beginning of 2000. The pro forma quarterly financial information gives effect to certain adjustments, including amortization of goodwill and other intangible assets, but excluding the non-recurring charge for the write-off of $18.5 million in in-process research and development acquired in the NEN acquisition and $8.0 million in in-process research and development acquired in the HFN transaction. The pro forma financial information does not necessarily reflect the results of operations that would have occurred had the three companies constituted a single entity during such periods.
TWELVE MONTHS TWELVE MONTHS ENDED ENDED 12/31/01 12/31/00 ------------- ------------- (IN THOUSANDS, EXCEPT PER SHARE DATA) Revenue................................................... $972,348 $1,148,806 Net income (loss)......................................... (113,029) (1,279) Basic net income (loss) per share......................... (1.14) (0.01) Diluted net income (loss) per share (a)................... (1.14)(a) (0.01)(a)
- --------------- (a) The effect of outstanding stock options is excluded from the calculation of diluted net loss per share, as their inclusion would be antidilutive. On February 1, 2001, the Company acquired Sybase A/S, a privately-held distributor of Sybase products in Denmark, for approximately $3.5 million in cash. The acquisition was accounted for using the purchase method of accounting, and a significant portion of the purchase price was allocated to intangible assets. The results of operations of the Denmark entity have not been material in relation to those of our company as a whole and are included in the consolidated results of operations for periods subsequent to the acquisition date. During 2000, the Company invested $15.7 million for equity interests of between 2 percent and 16 percent in five early-stage e-Business companies, of which $5.7 million was invested under the terms of its Innovation Fund. These nonmarketable investment securities are accounted for under the cost method of accounting. The Innovation Fund, which had a total of $50 million available for such investments, was approved by the Board of Directors in 1999. In order for an investment to qualify as an Innovation Fund investment, the following criteria must be met: (i) total investment by Sybase in the transaction must be no greater than $5 million, and (ii) Sybase's total equity interest in the entity must not exceed 19 percent of the total outstanding equity at any time. In September 2000, the Company acquired certain assets of its distributor in Mexico for approximately $4.0 million, and assumed certain of its liabilities. In addition, pursuant to the relevant agreements, the Company is obligated to make certain contingent payments in subsequent years based on certain agreed-upon performance criteria. The aggregate maximum additional contingent amount payable in 2001 and 2002 is 60 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) $5.2 million. This transaction has been accounted for as a purchase. The results of operations of the Mexico entity have not been material in relation to those of the Company and are included in the consolidated results of operations for periods subsequent to the acquisition date. In March 1999, the Company paid $5.4 million for Convertible Secured Promissory Notes due December 31, 2002 (Notes) issued by Demica PLC (Demica), a provider of a wholesale banking application using the Company's technology. The Notes bear interest at 8 percent per annum and at the time of issuance, were convertible into 29.9 percent of the share capital of Demica. On August 11, 2000, the Company converted the Notes into Demica shares and in August 2000, an investor paid Sybase approximately $1.7 million for 348,240 of such shares, thereby bringing Sybase's investment in Demica below 20 percent. Additionally, Demica has paid Sybase $331,000 for accrued interest under the Notes. The investment is being accounted for under the cost method of accounting. In February 1999, the Company acquired Data Warehouse Network (DWN), an Ireland-based, privately held provider of packaged, industry-specific business intelligence applications. Under the acquisition agreement, the Company paid $2.7 million in cash for certain assets and assumed certain liabilities of DWN. In addition, pursuant to the terms of the agreement, the Company is obligated to make contingent payments based on certain agreed-upon performance criteria. The aggregate maximum additional amount payable over a three-year period is $5.3 million of which $1.8 million has been paid to date. The transaction was accounted for as a purchase. Substantially the entire amount paid was allocated to purchased software and intangible assets. The results of operations of DWN have not been material in relation to those of the Company and are included in the consolidated results of operations for periods subsequent to the acquisition date. NOTE TWELVE: LITIGATION In January 2001, several class action lawsuits were filed in Federal District Court for the State of Colorado against NEN alleging violation of federal securities laws. Certain of NEN's current and former officers also were named as defendants. All cases were consolidated into a single case with a class period of October 18, 2000 to November 21, 2000. Although NEN believes this class action lawsuit is without merit, NEN agreed to settle the lawsuit for $5.0 million in order to avoid protracted and expensive litigation and the uncertainty of trial. NEN is responsible for $0.9 million of such settlement amount plus its accumulated legal expenses, and NEN's insurers are responsible for the balance. The Stipulation of Settlement was filed with the Court on March 22, 2002 and is awaiting approval from the Court. The settlement will have no material adverse effect on our consolidated financial condition or results of operations. Sybase has accrued for the settlement in its acquisition accounting for NEN. In May 2001, NEN and certain of its current and former officers reached a settlement agreement with the plaintiffs in an earlier consolidated class action lawsuit that alleged violation of the federal securities laws and other claims. That action was filed in federal court in Colorado in July 1999 and asserted claims on behalf of purchasers of NEN's securities from April 21, 1999, through July 6, 1999. Although NEN viewed this class action lawsuit to be without merit, NEN agreed to settle the lawsuit for $5.5 Million in order to avoid protracted and expensive litigation and the uncertainty of trial. NEN's insurers were responsible for payment of the entire settlement amount, although NEN was responsible for a portion of its accumulated legal expenses. The Agreement of Settlement was filed with the Court on August 3, 2001 and received final approval from the Court on January 2, 2002. The settlement will have no material adverse affect on our consolidated financial condition or results of operation. Sybase has accrued for the settlement in its acquisition accounting for NEN. NEN also was involved in a trademark infringement and dilution case filed in June 1999 in Texas District Court for Bend County by NEON Systems, Inc. (NSI) over the use of the name "NEON." At the conclusion of a jury trial on June 1, 2001, the court issued a judgment against NEN for $14 million in actual damages and $25 million in punitive damages. In addition, the court issued an injunction against NEN's use of the "NEON" name. The action was settled on September 5, 2001 for a lesser amount. Key provisions of the 61 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) settlement agreement provided for payment of $16.5 million to NSI and extended transition periods for NEN and certain of its resellers to discontinue use of the "NEON" name. Sybase has accrued for the settlement amount in its acquisition accounting for NEN. Sybase is a party to various other legal disputes and proceedings arising in the ordinary course of business. In the opinion of management, resolution of those matters is not expected to have a material adverse effect on our consolidated financial position. However, depending on the amount and timing of such resolution, an unfavorable resolution of some or all of these matters could materially affect our future results of operations or cash flows in a particular period. We believe we have adequately accrued for these matters at December 31, 2001. NOTE THIRTEEN: RESTRUCTURING COSTS In April 2001, in connection with the Company's acquisition of NEN and after announcement that first quarter and 2001 revenues would be below expectations, the Company began to implement a restructuring program designed to eliminate certain personnel, assets and facilities, aligning resources and streamlining Company costs (2001 Plan). The 2001 Plan resulted in the elimination of approximately $115 million from the Company's yearly ongoing cost structure. The goal of the 2001 Plan was to align the Company's cost structure with anticipated revenues. The 2001 Plan included restructuring charges of $25.2 million during the quarter ended June 30, 2001, restructuring charges of $10.3 million during the quarter ended September 30, 2001, and restructuring charges of $13.3 million during the fourth quarter ended December 31, 2001. During the second quarter the Plan called for the termination of approximately 400 employees, the consolidation or closure of more than 15 facilities worldwide, the write down of certain assets abandoned as a result of the office closures, and various other exit expenses directly related to the restructuring activities. During the third quarter, Sybase terminated the employment of approximately 280 additional employees, consolidated or closed two additional facilities, wrote down certain assets abandoned as a result of office closures, and incurred various other expenses directly related to the 2001 Plan. During the fourth quarter approximately 200 additional employees were terminated in accordance with the plan, the Company consolidated or closed twelve additional facilities, wrote down certain assets abandoned as a result of employee terminations, office closures and consolidations, and incurred various other exit expenses directly related to the 2001 Plan. In the fourth quarter, the Company also recorded additional restructuring charges associated with the costs to vacate eleven properties previously identified during the second and third quarters, based on the current analysis of independent real estate consultants. The amounts included in the 2001 Plan were as follows:
CASH/ Q2 Q3 Q4 NON CASH 2001 2001 2001 TOTAL -------- ----- ----- ----- ----- (DOLLARS IN MILLIONS) Termination payments to employees and other related costs............................................. Cash $10.1 $ 5.1 $ 4.0 $19.2 Lease cancellations and commitments................. Cash 14.2 3.8 7.8 25.8 Write-downs of: Property, equipment and improvements.............. Non-cash 0.5 1.3 1.4 3.2 Other............................................... Cash 0.4 0.1 0.1 0.6 ----- ----- ----- ----- $25.2 $10.3 $13.3 $48.8 ===== ===== ===== =====
TERMINATION PAYMENTS TO EMPLOYEES AND OTHER RELATED COSTS During the second quarter of 2001, the Company incurred a restructuring charge of $10.1 million for severance payments and other termination benefits provided to approximately 400 employees. During the third quarter of 2001, the Company incurred a restructuring charge of approximately $5.1 million for severance 62 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) payments and other termination benefits provided to approximately 280 employees. During the fourth quarter of 2001, the Company incurred a restructuring charge of approximately $5.7 million for severance payments and other termination benefits provided to approximately 200 employees. Severance payments and termination benefits were accrued and charged to restructuring costs in the period that amounts were determined and communicated to the affected employees. During the fourth quarter, the Company evaluated the costs associated with providing medical coverage and other benefits to certain employees terminated in the second and third quarters. As a result of the Company's experience through the end of the fourth quarter, the amount of the severance accrual relating to medical coverage and other benefits was reduced by approximately $1.0 million. In addition, there was a reversal in the fourth quarter to the severance accrual for approximately $0.7 million associated with a number of individuals who were either not terminated after they were asked to stay to fill positions voluntarily vacated by employees not included in the restructuring plan, or were foreign employees paid less then the amount originally provided after a legal proceeding to determine the severance amount as required under local law. The above reversal was recorded by a corresponding credit to restructuring expense. LEASE CANCELLATIONS AND COMMITMENTS During the second quarter of 2001, Sybase incurred restructuring charges of $13.5 million for facilities consolidated or closed in Boulder, Colorado; Emeryville, California; Hartford, Connecticut; Englewood, Colorado; Milpitas, California; New York, New York; Southfield, Michigan; Watertown, Massachusetts; Westport, Connecticut; and Orem, Utah. The Company also incurred restructuring charges of $0.7 million for facilities consolidated or closed in Canada, the United Kingdom, Belgium, Spain and Sweden. During the third quarter of 2001, Sybase incurred restructuring charges of $4.1 million for facilities consolidated or closed in Boston, Massachusetts, and in the United Kingdom. During the fourth quarter of 2001, the Company incurred restructuring charges of $4.4 million for facilities consolidated or closed in California, Colorado, Florida, Virginia, Mexico, Argentina, Puerto Rico, Japan, France and Switzerland. In addition, based on the analysis of independent real estate consultants, and reflecting changes in the economic conditions since the original accruals were established, the Company recorded additional restructuring charges of $4.0 million during the fourth quarter to fully provide for the current estimated cost to consolidate or close facilities in California, Colorado, Michigan, Utah, Massachusetts, New York and the UK. The offices included above were primarily used for the sale of Sybase software products, professional services and customer support, and in certain instances research and development. These restructuring charges reflect the remaining contractual obligations under the facility leases and certain costs associated with the expected sublease of the facilities, net of anticipated sublease income from the date of abandonment to the end of the lease term. Certain facilities described above continued in use during the completion of the restructuring. The Company continued to record monthly rent expense on these facilities as an operating expense until the facilities were abandoned. During the fourth quarter of 2001, approximately $0.6 million was reversed by a corresponding credit to restructuring expense, a second quarter accrual established to terminate a lease on a building which was later destroyed during the terrorist attacks of September 11th. During the fourth quarter the Company was notified that no additional payments would be required under the lease on the facility, and as a result the associated restructuring accrual was reversed. WRITE-DOWNS OF PROPERTY, EQUIPMENT AND FURNITURE In the second and third quarters of 2001, Sybase incurred restructuring charges of $0.5 million and $1.3 million, respectively, which were primarily related to the impairment of the carrying values of leaseholds and certain furniture attributable to facilities closed in connection with the restructuring. The assets were all taken out of service and held for disposal at the date the associated facility was closed. In the fourth quarter of 2001, the Company incurred a restructuring charge of $1.4 million, which was related to the impairment of the 63 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) carrying value of certain computer equipment and software associated with individuals terminated during the year for which there was no intended alternative use, and leaseholds and certain furniture attributable to facilities closed in connection with the restructuring. OTHER During the second quarter of 2001, the Company incurred a restructuring charge of $0.4 million associated with certain other restructuring related exit expenses, including legal costs associated with the severance of employees, travel and security costs associated with the termination of employees, and fees associated with the cancellation of certain obligations, and relocation expenses for certain terminated expatriates. During the third and fourth quarters of 2001, the Company incurred restructuring charges of $0.1 million for professional fees associated with the restructuring. The following table summarizes the activity related to the restructuring:
ACCRUED TOTAL AMOUNTS AMOUNTS LIABILITIES CHARGES PAID WRITTEN-OFF AMOUNTS REVERSED AT 12/31/01 ------- ------- ----------- ---------------- ----------- (DOLLARS IN MILLIONS) Termination payments to employees and other related costs................ $20.9 $13.5 -- $1.7 $ 5.7 Lease cancellations and commitments........................ 26.7 3.1 -- 0.9 22.7 Costs related to the write-down of assets............................. 3.2 -- $3.2 -- -- Other................................ 0.6 0.4 -- -- 0.2 ----- ----- ---- ---- ----- $51.4 $17.0 $3.2 $2.6 $28.6 ===== ===== ==== ==== =====
It is estimated that the remaining accruals relating to termination benefits and other restructuring relating activities will be paid by the second quarter of 2002. The payments of accruals related to lease cancellations and commitments which are dependent upon market conditions and our ability to negotiate acceptable lease buy-out outs or locate suitable subleases, will be paid over a period not to exceed nine years. As of December 31, 2001, Sybase had completed substantially all of the employee terminations identified during the second and third quarters. Approximately 100 of the 200 employees identified in the fourth quarter had been notified of their termination benefits, but had yet to receive their severance payments as of December 31, 2001. 64 QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
THREE MONTHS ENDED ------------------------------------ MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31, 2001 2001 2001 2001 2001 --------- -------- ------------- ------------ -------- (IN THOUSANDS, EXCEPT PER SHARE AND STOCK PRICE DATA) Revenues: License fees...................... $ 98,792 $ 94,741 $ 90,613 $104,892 $389,038 Services.......................... 130,280 139,660 135,700 131,408 537,048 -------- -------- -------- -------- -------- Total revenues: Costs and expenses: Cost of license fees.............. 8,593 11,489 11,366 14,247 45,695 Cost of services.................. 61,717 62,603 59,700 54,922 238,942 Sales and marketing............... 85,149 83,545 82,872 79,671 331,237 Product development and engineering.................... 29,468 33,645 30,794 31,497 125,404 General and administrative........ 17,528 19,072 20,063 20,222 76,885 Amortization of goodwill and other purchased intangibles.......... 7,173 15,972 15,630 17,084 55,859 In-process research and development.................... -- 18,500 -- -- 18,500 Stock compensation expense........ -- 333 504 497 1,334 Cost (reversal) of restructure.... -- 25,162 10,307 13,282 48,751 -------- -------- -------- -------- -------- Total costs and expenses............ 209,628 270,321 231,236 231,422 942,607 -------- -------- -------- -------- -------- Operating income (loss)............. 19,444 (35,920) (4,923) 4,878 (16,521) Interest income and expense, net.... 4,228 4,686 3,318 5,297 17,529 Minority interest................... (8) 6 -- (28) (30) -------- -------- -------- -------- -------- Income (loss) before income taxes... 23,664 (31,228) (1,605) 10,147 978 Provision for income taxes.......... 8,756 8,244 5,500 4,000 26,500 -------- -------- -------- -------- -------- Net income (loss)................... $ 14,908 $(39,472) $ (7,105) $ 6,147 $(25,522) ======== ======== ======== ======== ======== Basic net income (loss) per share... $ 0.17 $ (0.42) $ (0.07) $ 0.06 $ (0.27) Diluted net income (loss) per share............................. $ 0.16 $ (0.42) $ (0.07) $ 0.06 $ (0.27) Stock prices: High.............................. $ 25.88 $ 18.00 $ 16.81 $ 17.13 $ 25.88 Low............................... $ 15.00 $ 12.94 $ 8.58 $ 9.05 $ 8.58
65
THREE MONTHS ENDED ------------------------------------ MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31, 2000 2000 2000 2000 2000 --------- -------- ------------- ------------ -------- (IN THOUSANDS, EXCEPT PER SHARE AND STOCK PRICE DATA) Revenues: License fees...................... $110,668 $110,872 $114,370 $132,590 $468,501 Services.......................... 116,099 123,179 124,733 127,945 491,957 -------- -------- -------- -------- -------- Total revenues:..................... 226,767 234,051 239,103 260,535 960,458 Costs and expenses: Cost of license fees.............. 10,827 10,697 11,411 12,186 45,120 Cost of services.................. 60,785 61,329 60,940 62,783 245,837 Sales and marketing............... 83,268 83,915 84,591 93,375 345,149 Product development and engineering.................... 31,692 31,467 35,770 27,759 126,689 General and administrative........ 17,519 17,763 14,828 17,157 67,267 Amortization of goodwill and other purchased intangibles.......... 7,308 9,163 8,107 8,152 32,730 In-process research and development.................... 8,000 -- -- -- 8,000 Cost (reversal) of restructure.... -- -- -- (791) (791) -------- -------- -------- -------- -------- Total costs and expenses............ 219,399 214,334 215,647 220,621 870,001 -------- -------- -------- -------- -------- Operating income.................... 7,368 19,717 23,456 39,914 90,457 Interest income and expense, net.... 4,580 4,228 6,007 2,220 17,035 Minority interest................... -- -- 24 70 94 -------- -------- -------- -------- -------- Income before income taxes.......... 11,948 23,945 29,487 42,204 107,586 Provision for income taxes.......... 5,257 10,538 12,974 6,693 35,461 -------- -------- -------- -------- -------- Net income.......................... $ 6,691 $ 13,409 $ 16,513 $ 35,511 $ 72,125 ======== ======== ======== ======== ======== Basic net income per share.......... $ 0.08 $ 0.15 $ 0.19 $ 0.40 $ 0.82 Diluted net income per share........ $ 0.07 $ 0.14 $ 0.18 $ 0.39 $ 0.78 Stock prices: High.............................. $ 29.75 $ 24.94 $ 28.50 $ 24.31 $ 29.75 Low............................... 16.50 $ 18.25 $ 21.13 $ 17.56 $ 16.50
66 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE Not applicable. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF REGISTRANT The information required by this item with respect to identification of directors is incorporated by reference to "Election of Directors" in our definitive Proxy Statement for the Annual Meeting of Stockholders to be held May 23, 2002 (Proxy Statement). The Proxy Statement will be filed with the Commission within 120 days after the end of Sybase's fiscal year ended December 31, 2001. For information regarding the Company's executive officers, see "Executive Officers of the Registrant" at the end of Part I of this Report on Form 10-K. The information required by this item with respect to the information required under Item 405 of Regulation S-K is incorporated by reference to "Section 16(a) Beneficial Ownership Reporting Compliance" in the Proxy Statement. ITEM 11. EXECUTIVE COMPENSATION The information required by this item is incorporated by reference to "Executive Compensation" in the Proxy Statement. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information required by this item is incorporated by reference to "Stock Ownership of Management and Beneficial Owners" in the Proxy Statement. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The information required by this item is incorporated by reference to "Employment Agreements and Certain Transactions" in the Proxy Statement. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a) The following documents are filed as part of this Report on Form 10-K: 1. Financial Statements. See list of financial statements at the beginning of Part II, Item 8, incorporated here by reference. 2. Financial Statement Schedules. The following financial statement schedules of Sybase, Inc. for the years ended December 31, 2001, 2000, and 1999 are filed as part of this Report on Form 10-K and should be read in conjunction with the Consolidated Financial Statements in Part II, Item 8, and related notes. 3. Exhibits. Item 14(c) below is incorporated here by reference. All management contracts and compensatory plans filed as exhibits (or incorporated by reference into this Report) pursuant to Item 601 of Regulation S-K, are as follows:
EXHIBIT NO. DESCRIPTION - ------- ----------- 10.1(5) New Era of Networks, Inc. Amended and Restated 1995 Stock Option Plan 10.2(5) New Era of Networks, Inc. Amended and Restated 1997 Director Option Plan 10.3(5) New Era of Networks, Inc. 1998 Nonstatutory Stock Option Plan 10.4(5) Century Analysis Inc. 1996 Equity Incentive Plan
67
EXHIBIT NO. DESCRIPTION - ------- ----------- 10.5(5) Convoy Corporation 1997 Stock Option Plan 10.6(5) Microscript, Inc. 1997 Stock Option Plan 10.7(3) 1988 Stock Option Plan and Forms of Incentive Stock Option Agreements and Nonstatutory Stock Option Agreements, as amended 10.8 1991 Employee Stock Purchase Plan and 1991 Foreign Subsidiary Employee Stock Purchase Plan, as amended (incorporated by reference to the Registrant's Registration Statement on Form S-8 (file no. 333-83271) filed July 20, 1999 10.9(1) Sybase, Inc. 401(k) Plan, as amended 10.10 1992 Director Stock Option Plan, as amended 10.11(5) 2001 Director Stock Option Plan 10.12 Executive Deferred Compensation Plan, as amended (incorporated by reference to Registrant's Annual Report on Form 10-K for the year ended December 31, 1998). 10.13(5) 1996 Stock Plan, as amended 10.14(6) Form of Indemnification Agreement 10.15 Form of Indemnification Agreement (standard version) 10.16 Form of Indemnification Agreement (enhanced version) 10.17(2) Powersoft Corporation Form of Incentive Option Granted under the 1984 Incentive Stock Option Plan 10.18(2) Powersoft Corporation 1994 Amended and Restated Incentive and Non-Qualified Stock Option Plan 10.19(2) Powersoft Corporation Forms of Incentive and Non-Qualified Stock Option Granted under the 1994 Amended and Restated Incentive and Non-Qualified Stock Option Plan 10.20(2) Powersoft Corporation 1994 Amended and Restated Employee Stock Purchase Plan 10.21 Offer Letter to Richard J. Moore dated June 8, 2001 10.23 Amended and Restated Employment Agreement between Sybase, Inc. and John S. Chen dated as of June 11, 2001 10.24(3) Promissory Note of Eric Miles in favor of Sybase, Inc. dated as of January 2, 1998 10.25 1999 Nonstatutory Stock Plan, and form of Stock Option Agreement (incorporated by reference to the Registrant's Registration Statement on Form S-8 (file no. 333-85637) filed August 20, 1999) 10.26 Home Financial Network, Inc. 1995 Stock Plan, and form of Stock Option Agreement (incorporated by reference to the Registrant's Registration Statement on Form S-8 (file no. 333-95079) filed on January 20, 2000) 10.30(4) Financial Fusion, Inc. 2000 Stock Option Plan 10.31 Financial Fusion, Inc. 2001 Stock Option Plan 10.32 iAnywhere Solutions, Inc. Stock Option Plan 10.33 Notice of Grant and Restricted Stock Purchase Agreement
- --------------- (1) Incorporated by reference to exhibits filed in response to Item 16(a), "Exhibits," of the Company's Registration Statement on Form S-1 (File No. 33-41549) declared effective on August 13, 1991. (2) Incorporated by reference to the Registrant's Registration Statement on Form S-8 (file no. 33-89334) filed on February 10, 1995. (3) Incorporated by reference to exhibits filed in response to Item 16(a), "Exhibits," of the Company's Annual Report on Form 10-K for the year ended December 31, 1997. (4) Incorporated by reference to exhibits filed in response to the exhibits to the Company's Annual Report on Form 10-K for the year ended December 31, 2000. 68 (5) Incorporated by reference to the Registrant's Registration Statement on Form S-8 (file no. 333-63360) filed June 19, 2001. (6) Incorporated by reference to exhibits filed in response to Item 16(a), "Exhibits," of the Company's Annual Report on Form 10-K for the year ended December 31, 1998. (b)Reports on Form 8-K. There were no reports on Form 8-K filed during the quarter ended December 31, 2001. (c)Exhibits. The exhibits required by Item 601 of Regulation S-K are listed in the Exhibit Index to this Report on Form 10-K, incorporated here by reference.
FORM 10-K SCHEDULE PAGE - -------- --------- II Valuation and Qualifying Accounts........................ 70
Schedules not listed above have been omitted because they are either (i) not applicable or are not required, or (ii) the information is included in the Consolidated Financial Statements and related notes, Part II, Item 8. 69 SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS --------------------- SYBASE, INC.
(DOLLARS IN THOUSANDS) COL. A COL. B COL. C COL. D COL. E - --------------------------------------- ---------- ---------------------- ------------ ---------- ADDITIONS ---------------------- CHARGED BALANCE AT TO COSTS CHARGED BALANCE AT BEGINNING AND TO OTHER END OF DESCRIPTION OF PERIOD EXPENSES ACCOUNTS(A) DELETIONS(B) PERIOD ----------- ---------- -------- ----------- ------------ ---------- Year ended December 31, 2001: Deduced from asset accounts: Allowance for doubtful accounts... $22,313 -- $18,731 $21,338 $19,706 Year ended December 31, 2000: Deducted from asset accounts: Allowance for doubtful accounts... $31,452 $ 14 $ 3,003 $12,156 $22,313 Year ended December 31, 1999: Deducted from asset accounts: Allowance for doubtful accounts... $31,770 $ 1 $11,448 $11,767 $31,452
- --------------- A Sales returns and credit memos allowances B Uncollectible accounts written off and recoveries The required information regarding the valuation allowance for deferred tax assets is included in Note Eight to the Consolidated Financial Statements. 70 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this Report on Form 10-K to be signed on its behalf of the undersigned, thereunto duly authorized. SYBASE, INC. By: /s/ JOHN S. CHEN ------------------------------------ John S. Chen Chairman of the Board, Chief Executive Officer and President March 29, 2002 POWER OF ATTORNEY KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints John S. Chen, Pieter Van der Vorst and Teresa D. Chuh, jointly and severally, his or her attorneys-in-fact, each with the power of substitution, for him or her in any and all capacities, to sign any amendment to this Report on Form 10-K and to file the same, with exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, hereby ratifying and confirming all that each of said attorneys-in-fact, or his substitute or substitutes, may do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Exchange Act of 1934, this Report on Form 10-K has been signed by the following persons in the capacities and on the dates indicated:
SIGNATURE TITLE DATE --------- ----- ---- /s/ JOHN S. CHEN Chairman of the Board, Chief March 29, 2002 - ------------------------------------------------ Executive Officer (Principal (John S. Chen) Executive Officer), President and Director /s/ PIETER A. VAN DER VORST Vice President and Chief Financial March 29, 2002 - ------------------------------------------------ Officer (Principal Financial (Pieter A. Van der Vorst) Officer) /s/ MARTIN J. HEALY Vice President and Corporate March 29, 2002 - ------------------------------------------------ Controller (Principal Accounting (Martin J. Healy) Officer) /s/ RICHARD C. ALBERDING Director March 29, 2002 - ------------------------------------------------ (Richard C. Alberding) /s/ CECILIA CLAUDIO Director March 29, 2002 - ------------------------------------------------ (Cecilia Claudio) /s/ L. WILLIAM KRAUSE Director March 29, 2002 - ------------------------------------------------ (L. William Krause)
71
SIGNATURE TITLE DATE --------- ----- ---- /s/ ALAN B. SALISBURY Director March 29, 2002 - ------------------------------------------------ (Alan B. Salisbury) /s/ ROBERT P. WAYMAN Director March 29, 2002 - ------------------------------------------------ (Robert P. Wayman) /s/ LINDA K. YATES Director March 29, 2002 - ------------------------------------------------ (Linda K. Yates)
72 EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION - -------- ----------- 2.1 Agreement and Plan of Reorganization dated as of November 29, 1999, among Sybase, On-Line Financial Services, Inc., and Home Financial Network, Inc. (incorporated herein by reference to Exhibit 2.1 to the Registrant's Registration Statement on Form S-3 filed on January 31, 2000) 2.2 Agreement and Plan of Merger dated as of February 20, 2001, among Sybase, New Era of Networks, Inc., and Neel Acquisition Corp. (incorporated herein by reference to Exhibit 2(a) to the Registrant's Registration Statement on Form S-4 filed March 15, 2001) 3.1 Restated Certificate of Incorporation of Registrant, as amended (incorporated by reference to Amendment No. 1 to the Company's Registration Statement on Form S-4 filed March 8, 1994 (File No. 33-75462) 3.2 Bylaws of Registrant, as amended 4.1 Preferred Share Rights Agreement dated as of March 24, 1992 between Registrant and The First National Bank of Boston, as amended, (incorporated herein by reference to Exhibit 4.2 of the Registrant's Registration Statement on Form S-8 (file no. 33-81692) filed July 18, 1994) 4.2 Agreement of Substitution and Amendment of Preferred Shares Rights Agreement dated as of January 29, 2001, between Registrant and American Stock Transfer and Trust Company (incorporated by reference to Exhibit 4.3 to Registrant's Report on Form 10-Q for the quarter ended March 31, 2001) 10.1(6) New Era of Networks, Inc. Amended and Restated 1995 Stock Option Plan 10.2(6) New Era of Networks, Inc. Amended and Restated 1997 Director Option Plan 10.3(6) New Era of Networks, Inc. 1998 Nonstatutory Stock Option Plan 10.4(6) Century Analysis Inc. 1996 Equity Incentive Plan 10.5(6) Convoy Corporation 1997 Stock Option Plan 10.6(6) Microscript, Inc. 1997 Stock Option Plan 10.7(3) 1988 Stock Option Plan and Forms of Incentive Stock Option Agreements and Nonstatutory Stock Option Agreements, as amended 10.8 1991 Employee Stock Purchase Plan and 1991 Foreign Subsidiary Employee Stock Purchase Plan, as amended (incorporated by reference to the Registrant's Registration Statement on Form S-8 (file no. 333-83271) filed July 20, 1999 10.9(4) Sybase, Inc. 401(k) Plan, as amended 10.10 1992 Director Stock Option Plan, as amended 10.11(6) 2001 Director Stock Option Plan 10.12 Executive Deferred Compensation Plan, as amended (incorporated by reference to Registrant's Annual Report on Form 10-K for the year ended December 31, 1998) 10.13(6) 1996 Stock Plan, as amended 10.14(8) Form of Indemnification Agreement 10.15 Form of Amended and Restated Change of Control Agreement (standard version) 10.16 Form of Amended and Restated Change of Control Agreement (enhanced version) 10.17(2) Powersoft Corporation Form of Incentive Option Granted under the 1984 Incentive Stock Option Plan 10.18(2) Powersoft Corporation 1994 Amended and Restated Incentive and Non-Qualified Stock Option Plan 10.19(2) Powersoft Corporation Forms of Incentive and Non-Qualified Stock Option Granted under the 1994 Amended and Restated Incentive and Non-Qualified Stock Option Plan 10.20(2) Powersoft Corporation 1994 Amended and Restated Employee Stock Purchase Plan 10.21 Offer Letter to Richard J. Moore dated June 8, 2001
73
EXHIBIT NO. DESCRIPTION - -------- ----------- 10.23 Amended and Restated Employment Agreement between Sybase, Inc. and John S. Chen dated as of June 11, 2001 10.24(3) Promissory Note of Eric Miles in favor of Sybase, Inc. dated as of January 2, 1998 10.25 1999 Nonstatutory Stock Plan, and form of Stock Option Agreement (incorporated by reference to the Registrant's Registration Statement on Form S-8 (file no. 333-. 333-85637) filed August 20, 1999) 10.26 Home Financial Network, Inc. 1995 Stock Plan, and form of Stock Option Agreement (incorporated by reference to the Registrant's Registration Statement on Form S-8 (file no. 333-95079) filed on January 20, 2000) 10.27(5) Corporate Headquarters Lease, dated January 28, 2000, between Sybase, Inc. and WDS-Dublin, LLC, as amended on November 29, 2000 ("Headquarters Lease") 10.27(A) Second Amendment to Headquarters Lease dated as of December 13, 2001 10.28(5) Trust Agreement dated May 1, 2000, between Sybase, Inc. 401(k) Plan and Fidelity Management Trust Company 10.29(5) Trust Agreement dated May 1, 2000 between Sybase, Inc. and Fidelity Management Trust Company for administration of Executive Deferred Compensation Plan. 10.30(5) Financial Fusion, Inc. 2000 Stock Option Plan 10.31 Financial Fusion, Inc. 2001 Stock Option Plan 10.32 iAnywhere Solutions, Inc. Stock Option Plan 10.33 Notice of Grant and Restricted Stock Purchase Agreement 13.1(1) Proxy for 2002 Annual Meeting of Stockholders 21 Subsidiaries of Registrant 23.1 Consent of Independent Auditors 24(7) Powers of Attorney
- --------------- (1) To be filed with Securities and Exchange Commission not later than 120 days after the end of the period covered by this Report on Form 10-K. (2) Incorporated by reference to the Registrant's Registration Statement on Form S-8 (file no. 33-89334) filed on February 10, 1995. (3) Incorporated by reference to exhibits filed in response to Item 16(a), "Exhibits," of the Company's Annual Report on Form 10-K for the year ended December 31, 1997. (4) Incorporated by reference to exhibits filed in response to Item 16(a), "Exhibits," of the Company's Registration Statement on Form S-1 (File No. 33-41549) declared effective on August 13, 1991. (5) Incorporated by reference to exhibits filed in response to the exhibits to the Company's Annual Report on Form 10-K for the year ended December 31, 2000. (6) Incorporated by reference to the Registrant's Registration Statement on Form S-8 (file no. 333-63360) filed June 19, 2001. (7) Incorporated by reference to the signature page of this Report. (8) Incorporated by reference to exhibits filed in response to Item 16(a), "Exhibits," of the Company's Annual Report on Form 10-K for the year ended December 31, 1998. 74 EX-3.2 3 f79747ex3-2.txt EXHIBIT 3.2
TABLE OF CONTENTS Page ____ ARTICLE I - CORPORATE OFFICES.................................................. 1 1.1 REGISTERED OFFICE............................................... 1 1.2 OTHER OFFICES................................................... 1 ARTICLE II - MEETINGS OF STOCKHOLDERS.......................................... 1 2.1 PLACE OF MEETINGS............................................... 1 2.2 ANNUAL MEETING.................................................. 1 2.3 SPECIAL MEETINGS................................................ 1 2.4 NOTICE OF STOCKHOLDERS' MEETINGS................................ 2 2.5 ADVANCE NOTICE OF STOCKHOLDER NOMINEES AND STOCKHOLDER BUSINESS........................................ 2 2.6 MANNER OF GIVING NOTICE; AFFIDAVIT OF NOTICE.................... 3 2.7 QUORUM.......................................................... 3 2.8 ADJOURNED MEETING; NOTICE....................................... 4 2.9 VOTING.......................................................... 4 2.10 WAIVER OF NOTICE................................................ 5 2.11 STOCKHOLDER ACTION BY WRITTEN CONSENT WITHOUT A MEETING............................................... 5 2.12 RECORD DATE FOR STOCKHOLDER NOTICE; VOTING; GIVING CONSENTS................................................. 5 2.13 PROXIES......................................................... 6 2.14 LIST OF STOCKHOLDERS ENTITLED TO VOTE........................... 6 2.15 CONDUCT OF BUSINESS............................................. 6 ARTICLE III - DIRECTORS........................................................ 7 3.1 POWERS.......................................................... 7 3.2 NUMBER OF DIRECTORS............................................. 7 3.3 ELECTION QUALIFICATION AND TERM OF OFFICE OF DIRECTORS.......... 7 3.4 RESIGNATION AND VACANCIES....................................... 7 3.5 PLACE OF MEETINGS; MEETINGS BY TELEPHONE........................ 8 3.6 FIRST MEETINGS.................................................. 8 3.7 REGULAR MEETINGS................................................ 9 3.8 SPECIAL MEETINGS; NOTICE........................................ 9 3.9 QUORUM.......................................................... 9 3.10 WAIVER OF NOTICE................................................ 9 3.11 ADJOURNED MEETING; NOTICE....................................... 10 3.12 CONDUCT OF BUSINESS............................................. 10 -i-
3.13 BOARD ACTION BY WRITTEN CONSENT WITHOUT A MEETING.............. 10 3.14 FEES AND COMPENSATION OF DIRECTORS............................. 10 3.15 APPROVAL OF LOANS TO OFFICERS.................................. 10 3.16 REMOVAL OF DIRECTORS........................................... 11 ARTICLE IV - COMMITTEES....................................................... 11 4.1 COMMITTEES OF DIRECTORS........................................ 11 4.2 COMMITTEE MINUTES.............................................. 12 4.3 MEETINGS AND ACTION OF COMMITTEES.............................. 12 ARTICLE V - OFFICERS.......................................................... 12 5.1 OFFICERS....................................................... 12 5.2 ELECTION OF OFFICERS........................................... 12 5.3 REMOVAL AND RESIGNATION OF OFFICERS............................ 13 5.4 CHAIRMAN OF THE BOARD.......................................... 13 5.5 PRESIDENT...................................................... 13 5.6 VICE PRESIDENTS................................................ 13 5.7 SECRETARY...................................................... 14 5.8 TREASURER...................................................... 14 5.9 ASSISTANT SECRETARY............................................ 15 5.10 ASSISTANT TREASURER............................................ 15 5.11 AUTHORITY AND DUTIES OF OFFICERS............................... 15 ARTICLE VI - INDEMNITY........................................................ 15 6.1 INDEMNIFICATION OF DIRECTORS AND OFFICERS...................... 15 6.2 INDEMNIFICATION OF OTHERS...................................... 16 6.3 INSURANCE...................................................... 16 ARTICLE VII - RECORDS AND REPORTS............................................. 16 7.1 MAINTENANCE AND INSPECTION OF RECORDS.......................... 16 7.2 INSPECTION BY DIRECTORS........................................ 17 7.3 REPRESENTATION OF SHARES OF OTHER CORPORATIONS................. 17 ARTICLE VIII - GENERAL MATTERS................................................ 17 8.1 STOCK CERTIFICATES; PARTLY PAID SHARES......................... 17 8.2 LOST CERTIFICATES.............................................. 18 8.3 CONSTRUCTION; DEFINITIONS...................................... 18 8.4 DIVIDENDS...................................................... 18 8.5 FISCAL YEAR.................................................... 18 -ii-
8.6 SEAL............................................................ 18 8.7 TRANSFER OF STOCK............................................... 19 8.8 STOCK TRANSFER AGREEMENT........................................ 19 8.9 REGISTERED...................................................... 19 ARTICLE IX - AMENDMENTS........................................................ 19 ARTICLE X - DISSOLUTION........................................................ 20 ARTICLE XI - CUSTODIAN......................................................... 21 11.1 APPOINTMENT OF A CUSTODIAN IN CERTAIN CASES..................... 21 11.2 DUTIES OF CUSTODIAN............................................. 22 -iii-
BYLAWS OF SYBASE, INC. (as amended February 3, 1999) ARTICLE I CORPORATE OFFICES 1.1 REGISTERED OFFICE The registered office of the corporation in the State of Delaware shall be in the City of Wilmington, County of New Castle, State of Delaware. The name of the registered agent of the corporation at such location is Corporation Trust Company. 1.2 OTHER OFFICES The board of directors may at any time establish other offices at any place or places where the corporation is qualified to do business. ARTICLE II MEETINGS OF STOCKHOLDERS 2.1 PLACE OF MEETINGS Meetings of stockholders shall be held at the principal executive offices of the corporation, or at any other place, within or outside the State of Delaware, designated by the board of directors. In the absence of any such designation, stockholders' meetings shall be held at the principal executive offices of the corporation. 2.2 ANNUAL MEETING An annual meeting of stockholders shall be held for the election of directors at such date, time and place, either within or without the State of Delaware, as may be designated by resolution of the board of directors from time to time. Any other proper business may be transacted at the annual meeting. 2.3 SPECIAL MEETINGS A special meeting of the stockholders may be called at any time by the board of directors, or by the chairman of the board, by the president or by the chief executive officer, by one or more stockholders holding shares in the aggregate entitled to cast not less than ten percent of the votes at the meeting. If a special meeting is called by any person or persons other than the board of directors, the request shall be in writing, specifying the time of such meeting and the general nature of the business proposed to be transacted, and shall be delivered personally or sent by registered mail or by telegraphic or other facsimile transmission to the chairman of the board, the president, chief executive officer, or the secretary of the corporation. No business may be transacted at such special meeting otherwise than specified in such notice. The officer receiving the request shall cause notice to be promptly given to the stockholders entitled to vote, in accordance with the provisions of Sections 2.4 and 2.5, that a meeting will be held at the time requested by the person or persons who called the meeting, not less than thirty-five (35) nor more than sixty (60) days after the receipt of the request. If the notice is not given within twenty (20) days after the receipt of the request, the person or persons requesting the meeting may give the notice. Nothing contained in this paragraph of this Section 2.3 shall be construed as limiting, fixing, or affecting the time when a meeting of stockholders called by action of the board of directors may be held. 2.4 NOTICE OF STOCKHOLDERS MEETINGS All notices of meetings with stockholders shall be in writing and shall be sent or otherwise given in accordance with Section 2.6 of these bylaws not less than ten (10) nor more than sixty (60) days before the date of the meeting to each stockholder entitled to vote at such meeting. The notice shall specify the place, date, and hour of the meeting, and, in the case of a special meeting, the purpose or purposes for which the meeting is called. 2.5 ADVANCE NOTICE OF STOCKHOLDER NOMINEES AND STOCKHOLDER BUSINESS To be properly brought before an annual meeting or special meeting, nominations for the election of director or other business must be (a) specified in the notice of meeting (or any supplement thereto) given by or at the direction of the board of directors, (b) otherwise properly brought before the meeting by or at the direction of the board of directors, or (c) otherwise properly brought before the meeting by a stockholder. For such nominations or other business to be considered properly brought before the meeting by a stockholder such stockholder must have given timely notice and in proper form of his intent to bring such business before such meeting. To be timely, such stockholder's notice must be delivered to or mailed and received by the secretary of the corporation not less than ninety (90) days prior to the meeting; provided, however, that in the even that less than one-hundred (100) days notice or prior public disclosure of the date of the meeting is given or made to stockholders, notice by the stockholder to be timely must be so received not later than the close of business on the tenth day following the day on which such notice of the date of the meeting was mailed or such public disclosure was made. To be in proper form, a stockholder's notice to the secretary shall set forth: -2- (i) the name and address of the stockholder who intends to make the nominations or propose the business and, as the case may be, the name and address of the person or persons to be nominated or the nature of the business to be proposed; (ii) a representation that the stockholder is a holder of record of stock of the corporation entitled to vote at such meeting and, if applicable, intends to appear in person or by proxy at the meeting to nominate the person or persons specified in the notice or introduce the business specified in the notice; (iii) if applicable, a description of all arrangements or understandings between the stockholder and each nominee and any other person or persons (naming such person or persons) pursuant to which the nomination or nominations are to be made by the stockholder; (iv) such other information regarding each nominee or each matter of business to be proposed by such stockholder as would be required to be included in a proxy statement filed pursuant to the proxy rules of the Securities and Exchange Commission had the nominee been nominated, or intended to be nominated, or the matter been proposed, or intended to be proposed by the board of directors; and (v) if applicable, the consent of each nominee to serve as director of the corporation if so elected. The chairman of the meeting may refuse to acknowledge the nomination of any person or the proposal of any business not made in compliance with the foregoing procedure. 2.6 MANNER OF GIVING NOTICE; AFFIDAVIT OF NOTICE Written notice of any meeting of stockholders, if mailed, is given when deposited in the United States mail, postage prepaid, directed to the stockholder at his address at it appears on the records of the corporation. An affidavit of the secretary or an assistant secretary or of the transfer agent of the corporation that the notice has been given shall, in the absence of fraud, be prima facie evidence of the facts stated therein. 2.7 QUORUM The holders of a majority of the stock issued and outstanding and entitled to vote thereat, present in person or represented by proxy, shall constitute a quorum at all meetings of the stockholders for the transaction of business except as otherwise provided by statute or by the certificate of incorporation. If, however, such quorum is not present or represented at any meeting of -3- the stockholders, then either (i) the chairman of the meeting or (ii) the stockholders entitled to vote thereat, present in person or represented by proxy, shall have power to adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum is present or represented. At such adjourned meeting at which a quorum is present or represented, any business may be transacted that might have been transacted at the meeting as originally noticed. When a quorum is present or represented at any meeting, the vote of the holders of a majority of the stock having voting power present in person or represented by proxy shall decide any question brought before such meeting, unless the question is one upon which, by express provisions of the statutes or of the certificate of incorporation, a different vote is required, in which case such express provision shall govern and control the decision of the question. 2.8 ADJOURNED MEETING; NOTICE When a meeting is adjourned to another time or place, unless these bylaws otherwise require, notice need not be given of the adjourned meeting if the time and place thereof are announced at the meeting at which the adjournment is taken. At the adjourned meeting the corporation may transact any business that might have been transacted at the original meeting. If the adjournment is for more than thirty (30) days, or if after the adjournment a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at the meeting. 2.9 VOTING The stockholders entitled to vote at any meeting of stockholders shall be determined in accordance with the provisions of Section 2.12 and Section 2.14 of these bylaws, subject to the provisions of Sections 217 and 218 of the General Corporation Law of Delaware (relating to voting rights of fiduciaries, pledgors and joint owners of stock and to voting trusts and other voting agreements). Except as may otherwise be provided in the certificate of incorporation or the last paragraph of this Section 2.9, each stockholder shall be entitled to one vote for each share of capital stock held by such stockholder. At a stockholders' meeting at which directors are to be elected, or at elections held under special circumstances, a stockholder shall be entitled to cumulate votes (i.e., cast for any candidate a number of votes greater than the number of votes which such stockholder normally is entitled to cast). Each holder of stock of any class or series who elects to cumulate votes shall be entitled to as many votes as equals the number of votes which (absent this provision as to cumulative voting) he would be entitled to cast for the election of directors with respect to his shares of stock multiplied by the number of directors to be elected by him, and he may cast all of such votes for a single director or may distribute them among the number to be voted for, or for any two or more of them, as he may see fit, so long as the name of the candidate for director shall have been placed in nomination prior to the voting and the stockholder, or any other holder of the same class or series of stock, has given notice at the meeting prior to the voting of the intention to cumulate votes; provided that, except as -4- may otherwise be provided in the certificate of incorporation, effective upon such time as (i) shares of the capital stock of the corporation are designated as qualified for trading as National Market System securities on the National Association of Securities Dealers, Inc. Automated Quotation System (or any successor national market system) and (ii) the corporation has at least 800 holders of shares of its capital stock, the cumulative voting rights set forth in this Section 2.9 shall terminate. 2.10 WAIVER OF NOTICE Whenever notice is required to be given under any provision of the General Corporation Law of Delaware or of the certificate of incorporation or these bylaws, a written waiver thereof, signed by the person entitled to notice, whether before or after the time stated therein, shall be deemed equivalent to notice. Attendance of a person at a meeting shall constitute a waiver of notice of such meeting, except when the person attends a meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened. Neither the business to be transacted at, nor the purpose of, any regular or special meeting of the stockholders need be specified in any written waiver of notice unless so required by the certificate of incorporation or these bylaws. 2.11 STOCKHOLDER ACTION BY WRITTEN CONSENT WITHOUT A MEETING Effective upon the closing of the corporation's initial public offering of securities pursuant to a registration statement filed under the Securities Act of 1933, as amended, the stockholders of the corporation may not take action by written consent without a meeting but must take any such actions at a duly called annual or special meeting. 2.12 RECORD DATE FOR STOCKHOLDER NOTICE; VOTING; GIVING CONSENTS In order that the corporation may determine the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof or entitled to express consent or dissent to corporate action in writing without a meeting (if otherwise permitted by these bylaws and the corporation's certificate of incorporation), or entitled to receive payment of any dividend or other distribution or allotment of any rights or entitled to exercise any rights in respect of any change, conversion or exchange of stock or for the purpose of any other lawful action, the board of directors may fix, in advance, a record date, which shall be not more than sixty (60) nor less than ten (10) days before the date of such meeting, nor more than sixty (60) days prior to any other action. If the board of directors does not so fix a record date, the fixing of such record date shall be governed by the provisions of Section 213 of the General Corporation Law of Delaware. A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting; provided, however, that the board of directors may fix a new record date for the adjourned meeting. -5- 2.13 PROXIES Each stockholder entitled to vote at a meeting of stockholders or entitled to express consent or dissent to corporate action in writing without a meeting (if otherwise permitted by these bylaws and the corporation's certificate of incorporation) may authorize another person or persons to act for him by a written proxy, signed by the stockholder and filed with the secretary of the corporation, but no such proxy shall be voted or acted upon after three (3) years from its date, unless the proxy provides for a longer period. A proxy shall be deemed signed if the stockholder's name is placed on the proxy (whether by manual signature, typewriting, telegraphic transmission or otherwise) by the stockholder or the stockholder's attorney-in-fact. The revocability of a proxy that states on its face that it is irrevocable shall be governed by the provisions of Section 212(c) of the General Corporation Law of Delaware. 2.14 LIST OF STOCKHOLDERS ENTITLED TO VOTE The officer who has charge of the stock ledger of the corporation shall prepare and make, at least ten (10) days before every meeting of stockholders, a complete list of the stockholders entitled to vote at the meeting, arranged in alphabetical order, and showing the address of each stockholder and the number of shares registered in the name of each stockholder. Such list shall be open to the examination of any stockholder, for any purpose germane to the meeting, during ordinary business hours, for a period of at least ten (10) days prior to the meeting, either at a place within the city where the meeting is to be held, which place shall be specified in the notice of the meeting, or, if not so specified, at the place where the meeting is to be held. The list shall also be produced and kept at the time and place of the meeting during the whole time thereof, and may be inspected by any stockholder who is present. The stock ledger shall be the only evidence as to who are the stockholders entitled to examine the stock ledger, the list of stockholders or the books of the corporation, or to vote in person or by proxy at any meeting of stockholders and of the number of shares held by each such stockholder. 2.15 CONDUCT OF BUSINESS Meetings of stockholders shall be presided over by the chairman of the board, if any, or in his absence by the president, or in his absence by a vice president, or in the absence of the foregoing persons by a chairman designated by the board of directors, or in the absence of such designation by a chairman chosen at the meeting. The secretary shall act as secretary of the meeting, but in his absence the chairman of the meeting may appoint any person to act as secretary of the meeting. The chairman of any meeting of stockholders shall determine the order of business and the procedures at the meeting, including such matters as the regulation of the manner of voting and conduct of business. -6- ARTICLE III DIRECTORS 3.1 POWERS Subject to the provisions of the General Corporation Law of Delaware and any limitations in the certificate of incorporation or these bylaws relating to action required to be approved by the stockholders or by the outstanding shares, the business and affairs of the corporation shall be managed and all corporate powers shall be exercised by or under the direction of the board of directors. 3.2 NUMBER OF DIRECTORS The number of directors of the corporation is fixed at seven (7), of which two shall be designated as Class I directors, two shall be designated as Class II directors and three shall be designated as Class III directors. No reduction of the authorized number of directors shall have the effect of removing any director before that director's term of office expires. 3.3 ELECTION QUALIFICATION AND TERM OF OFFICE OF DIRECTORS Each director shall hold office until his successor is elected and qualified or until his earlier resignation or removal. Directors need not be stockholders unless so required by the certificate of incorporation or these bylaws. Election of directors need not be by written ballot. 3.4 RESIGNATION AND VACANCIES Any director may resign at any time upon written notice to the corporation. Stockholders may remove directors with or without cause. Any vacancy occurring in the board of directors with or without cause may be filled by a majority of the remaining members of the board of directors, although such majority is less than a quorum, or by a plurality of the votes cast at a meeting of stockholders, and each director so elected shall hold office until the expiration of the term of office of the director whom he has replaced. Unless otherwise provided in the certificate of incorporation or these bylaws: (i) Vacancies and newly created directorships resulting from any increase in the authorized number of directors elected by all of the stockholders having the right to vote as a single class may be filled by a majority of the directors then in office, although less than a quorum, or by a sole remaining director. (ii) Whenever the holders of any class or classes of stock or series thereof are entitled to elect one or more directors by the provisions of -7- the certificate of incorporation, vacancies and newly created directorships of such class or classes or series may be filled by a majority of the directors elected by such class or classes or series thereof then in office, or by a sole remaining director elected. If at any time, by reason of death or resignation or other cause, the corporation should have no directors in office, then any officer or any stockholder or an executor, administrator, trustee or guardian of a stockholder, or other fiduciary entrusted with like responsibility for the person or estate of a stockholder may apply to the Court of Chancery for a decree summarily ordering an election as provided in Section 211 of the General Corporation Law of Delaware. If, at the time of filling any vacancy or any newly created directorship, the directors then in office constitute less than a majority of the whole board (as constituted immediately prior to any such increase), then the Court of Chancery may, upon application of any stockholder or stockholders holding at least ten (10) percent of the total number of the shares at the time outstanding having the right to vote for such directors, summarily order an election to be held to fill any such vacancies or newly created directorships, or to replace the directors chosen by the directors then in office as aforesaid, which election shall be governed by the provisions of Section 211 of the General Corporation Law of Delaware as far as applicable. 3.5 PLACE OF MEETINGS; MEETINGS BY TELEPHONE The board of directors of the corporation may hold meetings, both regular and special, either within or outside the State of Delaware. Unless otherwise restricted by the certificate of incorporation or these bylaws, members of the board of directors, or any committee designated by the board of directors, may participate in a meeting of the board of directors, or any committee, by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other, and such participation in a meeting shall constitute presence in person at the meeting. 3.6 FIRST MEETINGS The first meeting of each newly elected board of directors shall be held at such time and place as shall be fixed by the vote of the stockholders at the annual meeting and no notice of such meeting shall be necessary to the newly elected directors in order legally to constitute the meeting, provided a quorum shall be present. In the event of the failure of the stockholders to fix the time or place of such first meeting of the newly elected board of directors, or in the event such meeting is not held at the time and place so fixed by the stockholders, the meeting may be held at such time and place as shall be specified in a notice given as hereinafter provided for special meetings of the board of directors, or as shall be specified in a written waiver signed by all of the directors. -8- 3.7 REGULAR MEETINGS Regular meetings of the board of directors may be held without notice at such time and at such place, within or without the State of Delaware, as shall from time to time be determined by the board. 3.8 SPECIAL MEETINGS; NOTICE Special meetings of the board of directors may be held at such time and at such place, within or without the State of Delaware, whenever called by the chairman of the board, by the president, by the secretary or by any two directors. When given by the chairman of the board, the president or the secretary, notice of the time and place of special meeting shall be delivered personally or by telephone or facsimile to each director at least 24 hours in advance of the date and time of the special meeting. When given by any two directors, notice of the time and place of the special meeting shall be delivered personally or by telephone or facsimile to each director or sent by first-class mail to them, charges prepaid addressed to each director at that director's address as it is shown on the records of the Corporation. Such notice shall be given at least four days before the time of the holding of the meeting. If the notice is mailed, it shall be deposited in the United States mail at least six days before the time of the holding of the meeting. If the notice is delivered personally or by telephone, facsimile or by telegram, it shall be delivered personally by telephone, facsimile or to the telegraph company at least four days before the time of the holding of the meeting. Any oral notice (when given by either the chairman, the president, the secretary or any two directors) given either personally or by telephone may be communicated either to the director or to a person at the office of the director whom the person giving the notice has reason to believe will promptly communicate it to the director. No notice need specify the place for the meeting if the meeting is to be held at the principal executive office of the Corporation. 3.9 QUORUM At all meetings of the board of directors, a majority of the number of authorized directors shall constitute a quorum for the transaction of business and the act of a majority of the directors present at any meeting at which there is a quorum shall be the act of the board of directors, except as may be otherwise specifically provided by statute or by the certificate of incorporation. 3.10 WAIVER OF NOTICE Whenever notice is required to be given under any provision of the General Corporation Law of Delaware or of the certificate of incorporation or these bylaws, a written waiver thereof, signed by the person entitled to notice, whether before or after the time stated therein, shall be deemed equivalent to notice. Attendance of a person at a meeting shall constitute a waiver of notice of such -9- meeting, except when the person attends a meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened. Neither the business to be transacted at, nor the purpose of, any regular or special meeting of the directors, or members of a committee of directors, need be specified in any written waiver of notice unless so required by the certificate incorporation or these bylaws. 3.11 ADJOURNED MEETING; NOTICE If a quorum is not present at any meeting of the board of directors, then the directors present thereat may adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum is present. 3.12 CONDUCT OF BUSINESS Meetings of the board of directors shall be presided over by the chairman of the board, if any, or in his absence by the president, or in their absence by a chairman chosen at the meeting. The secretary shall act as secretary of the meeting, but in his absence the chairman of the meeting may appoint any person to act as secretary of the meeting. The chairman of any meeting shall determine the order of business and the procedures at the meeting. 3.13 BOARD ACTION BY WRITTEN CONSENT WITHOUT A MEETING Unless otherwise restricted by the certificate of incorporation or these bylaws, any action required or permitted to be taken at any meeting of the board of directors, or of any committee thereof, may be taken without a meeting if all members of the board or committee, as the case may be, consent thereto in writing and the writing or writings are filed with the minutes of proceedings of the board or committee. 3.14 FEES AND COMPENSATION OF DIRECTORS Unless otherwise restricted by the certificate of incorporation or these bylaws, the board of directors shall have the authority to fix the compensation of directors. The directors may be paid their expenses, if any, of attendance at each meeting of the board of directors and may be paid a fixed sum for attendance at each meeting of the board of directors or a stated salary as director. No such payment shall prelude any director from serving the corporation in any other capacity and receiving compensation therefor. Members of special or standing committees may be allowed like compensation for attending committee meetings. 3.15 APPROVAL OF LOANS TO OFFICERS The corporation may lend money to, or guarantee any obligation of, or otherwise assist any officer or other employee of the corporation or of its subsidiary, including any officer or employee who is a director of the corporation or its subsidiary, whenever, in the judgement of the directors, such loan, guaranty or assistance may reasonably be expected to benefit the corporation. The loan, -10- guaranty or other assistance may be with or without interest and may be unsecured, or secured in such manner as the board of directors shall approve, including, without limitation, a pledge of shares of stock of the corporation. Nothing in this section shall be deemed to deny, limit or restrict the powers of guaranty or warranty of the corporation at common law or under any statute. 3.16 REMOVAL OF DIRECTORS Unless otherwise restricted by statute, by the certificate of incorporation or by these bylaws, any director or the entire board of directors may be removed, with or without cause, by the holders of a majority of the shares then entitled to vote at an election of directors; provided, however, that, so long as stockholders of the corporation are entitled to cumulative voting, if less than the entire board is to be removed, no director may be removed without cause if the votes cast against his or her removal would be sufficient to elect him or her if then cumulatively voted at an election of the entire Board of Directors. No reduction of the authorized number of directors shall have the effect of removing any director prior to the expiration of such director's term of office. ARTICLE IV COMMITTEES 4.1 COMMITTEES OF DIRECTORS The board of directors may, by resolution passed by a majority of the whole board, designate one or more committees, with each committee to consist of one or more of the directors of the corporation. The board may designate one or more directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of the committee. In the absence or disqualification of a member of a committee, the member or members thereof present at any meeting and not disqualified from voting, whether or not he or they constitute a quorum, may unanimously appoint another member of the board of directors to act at the meeting in the place of any such absent or disqualified member. Any such committee, to the extent provided in the resolution of the board of directors or in the bylaws of the corporation, shall have and may exercise all the powers and authority of the board of directors in the management of the business and affairs of the corporation, and may authorize the seal of the corporation to be affixed to all papers that may require it; but no such committee shall have the power or authority to (i) amend the certificate of incorporation (except that a committee may, to the extent authorized in the resolution or resolutions providing for the issuance of shares of stock adopted by the board of directors as provided in Section 151(a) of the General Corporation Law of Delaware, fix any of the preferences or rights of such shares relating to dividends, redemption, dissolution, any distribution of assets of the corporation or the conversion into, or the exchange of such shares for, shares of any other class or classes or any other series of the same or any other class or classes of stock of the corporation), (ii) adopt an agreement of merger or consolidation under Sections 251 or 252 of the General Corporation Law of agreement of merger or consolidation under Section 251 or 252 of the General Corporation Law of Delaware, (iii) recommend to the stockholders the sale, lease or exchange of all or substantially all of -11- the corporation's property and assets (iv) recommend to the stockholders a dissolution of the corporation or a revocation of a dissolution, or (v) amend the bylaws of the corporation; and, unless the board resolution establishing the committee, the bylaws or the certificate of incorporation expressly so provide, no such committee shall have the power or authority to declare a dividend, to authorize the issuance of stock, or to adopt a certificate of ownership and merger pursuant to Section 253 of the General Corporation Law of Delaware. 4.2 COMMITTEE MINUTES Each committee shall keep regular minutes of its meetings and report the same to the board of directors when required. 4.3 MEETINGS AND ACTION OF COMMITTEES Meetings and actions of committees shall be governed by, and held and taken in accordance with, the provisions of Article III of these bylaws, Section 3.5 (place of meetings and meetings by telephone), Section 3.7 (regular meetings), Section 3.8 (special meetings and notice), Section 3.9 (quorum), Section 3.10 (waiver of notice), Section 3.11 (adjournment and notice of adjournment), section 3.12 (conduct of business) and Section 3.13 (action without a meeting), with such changes in the context of those bylaws as are necessary to substitute the committee and its members for the board of directors and its members; provided, however, that the time of regular meetings of committees may also be called by resolution of the board of directors and that notice of special meetings of committees shall also be given to all alternate members, who shall have the right to attend all meetings of the committee. The board of directors may adopt rules for the government of any committee not inconsistent with the provisions of these bylaws. ARTICLE V OFFICERS 5.1 OFFICERS The officers of the corporation shall be a president, one or more vice presidents, a secretary, and a treasurer. The corporation may also have, at the discretion of the board of directors, a chairman of the board, one or more assistant vice presidents, assistant secretaries, assistant treasurers, and any such other officers as may be appointed in accordance with the provisions of Section 5.2 of these bylaws. Any number of offices may be held by the same person. 5.2 ELECTION OF OFFICERS Except as otherwise provided in this Section 5.2, the officers of the corporation shall be chosen by the board of directors, subject to the rights, if any, of an officer under any contract of employment. The board of directors may appoint, or empower the president to appoint (whether of not such officer is described in this Article V), such officers and agents of the business as the -12- corporation may require, each of whom shall hold office for such period, have such authority, and perform such duties as are provided in these bylaws or as the board of directors may from time to time determine. Any vacancy occurring in any office of the corporation shall be filled by the board of directors or may be filled by the president (if the president appointed such officer). 5.3 REMOVAL AND RESIGNATION OF OFFICERS Subject to the rights, if any, of an officer under any contract of employment, any officer may be removed, either with or without cause, by an affirmative vote of the majority of the board of directors at any regular or special meeting of the board or, except in the case of an officer chosen by the board of directors, by any officer upon whom such power of removal may be conferred by the board of directors or, in the case of an officer appointed by the president, by the president. Any officer may resign at any time by giving written notice to the corporation. Any resignation shall take effect at the date of the receipt of that notice or at any later time specified in that notice; and, unless otherwise specified in that notice, the acceptance of the resignation shall not be necessary to make it effective. Any resignation is without prejudice to the rights, if any, of the corporation under any contract to which the officer is a party. 5.4 CHAIRMAN OF THE BOARD The chairman of the board, if such an officer be elected, shall, if present, preside at meetings of the board of directors and exercise and perform such other powers and duties as may from time to time be assigned to him by the board of directors or as may be prescribed by these bylaws. If there is no president, then the chairman of the board shall also be the chief executive officer of the corporation and shall have the powers and duties prescribed in Section 5.5 of these bylaws. 5.5 PRESIDENT Subject to such supervisory powers, if any, as may be given by the board of directors to the chairman of the board, if there be such an officer, the president, unless otherwise determined by the board of directors, shall be the chief executive officer of the corporation and shall, subject to the control of the board of directors, have general supervision, direction, and control of the business and the officers of the corporation. He shall preside at all meetings of the shareholders and, in the absence or nonexistence of a chairman of the board, at all meetings of the board of directors. He shall have the general powers and duties of management usually vested in the office of president of a corporation and shall have such other powers and duties as may be prescribed by the board of directors or these bylaws. 5.6 VICE PRESIDENTS In the absence or disability of the president, the vice presidents, if any, in order of their rank as fixed by the board of directors or, if not ranked, a vice president designated by the board of directors, -13- shall perform all the duties of the president and when so acting shall have all the powers of, and be subject to all the restrictions upon, the president. The vice presidents shall have such other powers and perform such other duties as from time to time may be prescribed for them respectively by the board of directors, these bylaws, the president or the chairman of the board. 5.7 SECRETARY The secretary shall keep or cause to be kept, at the principal executive office of the corporation or such other place as the board of directors may direct, a book of minutes of all meetings and actions of directors, committees of directors, and shareholders. The minutes shall show the time and place of each meeting, whether regular or special (and, if special, how authorized and the notice given), the names of those present at directors' meetings or committee meetings, the number of shares present or represented at shareholders' meetings, and the proceedings thereof. The secretary shall keep, or cause to be kept, at the principal executive office of the corporation or at the office of the corporation's transfer agent or registrar, as determined by resolution of the board of directors, a share register, or a duplicate share register, showing the names of all shareholders and their addresses, the number and classes of shares held by each, the number and date of certificates evidencing such shares, and the number and date of cancellation of every certificate surrendered for cancellation. The secretary shall give, or cause to be given, notice of all meetings of the shareholders and of the board of directors required to be given by law or by these bylaws. He shall keep the seal of the corporation, if one be adopted, in safe custody and shall have such other powers and perform such other duties as may be prescribed by the board of directors or by these bylaws. 5.8 TREASURER The treasurer shall keep and maintain, or cause to be kept and maintained, adequate and correct books and records of accounts of the properties and business transactions of the corporation, including accounts of its assets, liabilities, receipts, disbursements, gains, losses, capital, retained earnings and shares. The books of account shall at all reasonable times be open to inspection by any director. The treasurer shall deposit all money and other valuables in the name and to the credit of the corporation with such depositaries as may be designated by the board of directors. He shall disburse the funds of the corporation as may be ordered by the board of directors, shall render to the president and directors, whenever they request it, an account of all of his transactions as treasurer and of the financial condition of the corporation, and shall have such other powers and perform such other duties as may be prescribed by the board of directors or these bylaws. -14- 5.9 ASSISTANT SECRETARY The assistant secretary, or, if there is more than one, the assistant secretaries in the order determined by the stockholders or board of directors (or if there be no such determination, then in the order of their election) shall, in the absence of the secretary or in the event of his or her inability or refusal to act, perform the duties and exercise the powers of the secretary and shall perform such other duties and have such other powers as the board of directors or the stockholders may from time to time prescribe. 5.10 ASSISTANT TREASURER The assistant treasurer, or, if there is more than one, the assistant treasurers, in the order by the stockholders or board of directors (or if there be no such determination, then in the order of their election), shall, in the absence of the treasurer or in the event of his or her inability or refusal to act, perform the duties and exercise the powers of the treasurer and shall perform such other duties and have such other powers as the board of directors or the stockholders may from time to time prescribe. 5.11 AUTHORITY AND DUTIES OF OFFICERS In addition to the foregoing authority and duties, all officers of the corporation shall respectively have such authority and perform such duties in the management of the business of the corporation as may be designated from time to time by the board of directors or the stockholders. ARTICLE VI INDEMNITY 6.11 INDEMNIFICATION OF DIRECTORS AND OFFICERS The corporation shall, to the maximum extent and in the manner permitted by the General Corporation Law of Delaware, indemnify each of its directors and officers against expenses (including attorneys' fees), judgments, fines, settlements, and other amounts actually and reasonably incurred in connection with any proceeding, arising by reason of the fact that such person is or was an agent of the corporation. For purposes of this Section 6.1, a "director" or "officer" of the corporation includes any person (i) who is or was a director or officer of the corporation, (ii) who is or was serving at the request of the corporation as a director or officer of another corporation, partnership, joint venture, trust or other enterprise, including, without limitation, any direct or indirect subsidiary of the corporation, or (iii) who was a director or officer of a corporation which was a predecessor corporation of the corporation or of another enterprise at the request of such predecessor corporation. -15- 6.2 INDEMNIFICATION OF OTHERS The corporation shall have the power, to the extent and in the manner permitted by the General Corporation Law of Delaware, to indemnify each of its employees and agents (other than directors and officers) against expenses (including attorneys' fees), judgements, fines, settlements, and other amounts actually and reasonably incurred in connection with any proceeding, arising by reason of the fact that such person is or was an agent of the corporation. For purposes of this Section 6.2, an "employee" or "agent" of the corporation (other than a director or officer) includes any person (i) who is or was an employee or agent of the corporation, (ii) who is or was serving at the request of the corporation as an employee or agent of another corporation, partnership, joint venture, trust or other enterprise, including, without limitation, any direct or indirect subsidiary of the corporation, or (iii) who was an employee or agent of a corporation which was a predecessor corporation of the corporation or of another enterprise at the request of such predecessor corporation. 6.3 INSURANCE The corporation may purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against any liability asserted against him and incurred by him in any such capacity, or arising out of his status as such, whether or not the corporation would have the power to indemnify him against such liability under the provisions of the General Corporation Law of Delaware. ARTICLE VII RECORDS AND REPORTS 7.1 MAINTENANCE AND INSPECTION OF RECORDS The corporation shall, either at its principal executive office or at such place or places as designated by the board of directors, keep a record of its stockholders listing their names and addresses and the number and class of shares held by each stockholder, a copy of these bylaws as amended to date, accounting books, and other records. Any stockholder of record, in person or by attorney or other agent, shall, upon written demand under oath stating the purpose thereof, have the right during the usual hours of business to inspect for any proper purpose the corporation's stock ledger, a list of its stockholders, and its other books and records and to make copies or extracts therefrom. A proper purpose shall mean a purpose reasonably related to such person's interest as a stockholder. In every instance where an attorney or other agent is the person who seeks the right to inspection, the demand under oath shall be accompanied by a power of attorney or such other writing that authorizes the attorney or other agent to so act on behalf of the stockholder. The demand under oath shall be directed to the corporation at its registered office in Delaware or at its principal place of business. -16- 7.2 INSPECTION BY DIRECTORS Any director shall have the right to examine the corporation's stock ledger, a list of its stockholders, and its other books and records for a purpose reasonably related to his position as a director. The Court of Chancery is hereby vested with the exclusive jurisdiction to determine whether a director is entitled to the inspection sought. The Court may summarily order the corporation to permit the director to inspect any and all books and records, the stock ledger, and the stock list and to make copies or extracts therefrom. The Court may, in its discretion, prescribe any limitations or conditions with reference to the inspection, or award such other and further relief as the Court may deem just and proper. 7.3 REPRESENTATION OF SHARES OF OTHER CORPORATIONS The chairman of the board, the president, any vice president, the treasurer, the secretary or assistant secretary of this corporation, or any other person authorized by the board of directors or the president or a vice president, is authorized to vote, represent, and exercise on behalf of this corporation all rights incident to any and all shares of any other corporation or corporations standing in the name of this corporation. The authority granted herein may be exercised either by such person directly or by any other person authorized to do so by proxy or power of attorney duly executed by such person having the authority. ARTICLE VIII GENERAL MATTERS 8.1 STOCK CERTIFICATES; PARTLY PAID SHARES The shares of a corporation shall be represented by certificates, provided that the board of directors of the corporation may provide by resolution or resolutions that some or all of any or all classes or series of its stock shall be uncertificated shares. Any such resolution shall not apply to shares represented by a certificate until such certificate is surrendered to the corporation. Notwithstanding the adoption of such a resolution by the board of directors, every holder of stock represented by certificates and, upon request, every holder of uncertificated shares, shall be entitled to have a certificate signed by, or in the name of the corporation by the chairman or vice-chairman of the board of directors, or the president or vice-president, and by the treasurer or an assistant treasurer, or the secretary or an assistant secretary of such corporation representing the number of shares registered in certificate form. Any or all of the signatures on the certificate may be a facsimile. In case any officer, transfer agent or registrar who has signed or whose facsimile signature has been placed upon a certificate has ceased to be such officer, transfer agent or registrar before such certificate is issued, it may be issued by the corporation with the same effect as if he were such officer, transfer agent or registrar at the date of issue. -17- The corporation may issue the whole or any part of its shares as partly paid and subject to call for the remainder of the consideration to be paid therefor. Upon the face or back of each stock certificate issued to represent any such partly paid shares, or upon the books and records of the corporation in the case of uncertificated partly paid shares, the total amount of the consideration to be paid therefor and the amount paid thereon shall be stated. Upon the declaration of any dividend on fully paid shares, the corporation shall declare a dividend upon partly paid shares of the same class, but only upon the basis of the percentage of the consideration actually paid thereon. 8.2 LOST CERTIFICATES Except as provided in this Section 8.2, no new certificates for shares shall be issued to replace a previously issued certificate unless the latter is surrendered to the corporation and cancelled at the same time. The corporation may issue a new certificate of stock or uncertificated shares in the place of any certificate theretofore issued by it, alleged to have been lost, stolen or destroyed, and the corporation may require the owner of the lost, stolen or destroyed certificate, or his legal representative, to give the corporation a bond sufficient to indemnity it against any claim that may be made against it on account of the alleged loss, theft or destruction of any such certificate or the issuance of such new certificate or uncertificated shares. 8.3 CONSTRUCTION; DEFINITIONS Unless the context requires otherwise, the general provisions, rules of construction, and definitions in the Delaware General Corporation Law shall govern the construction of these bylaws. Without limiting the generality of this provision, the singular number includes the plural, the plural number includes the singular, and the term "person" includes both a corporation and a natural person. 8.4 DIVIDENDS The directors of the corporation, subject to any restrictions contained in the certificate of incorporation, may declare and pay dividends upon the shares of its capital stock pursuant to the General Corporation Law of Delaware. Dividends may be paid in cash, in property, or in shares of the corporation's capital stock. The directors of the corporation may set apart out of any of the funds of the corporation available for dividends a reserve or reserves for any proper purpose and may abolish any such reserve. 8.5 FISCAL YEAR The fiscal year of the corporation shall be fixed by resolution of the board of directors and may be changed by the board of directors. 8.6 SEAL The corporation may adopt a corporate seal, which may be altered at pleasure, and may use -18- the same by causing it or a facsimile thereof to be impressed or affixed or in any other manner reproduced. 8.7 TRANSFER OF STOCK Upon surrender to the corporation or the transfer agent of the corporation of a certificate for shares duly endorsed or accompanied by proper evidence of succession, assignation or authority to transfer, it shall be the duty of the corporation to issue a new certificate to the person entitled thereto, cancel the old certificate, and record the transaction in its books. 8.8 STOCK TRANSFER AGREEMENTS The corporation shall have power to enter into and perform any agreement with any number of stockholders of any one or more classes of stock of the corporation to restrict the transfer of shares of stock of the corporation of any one or more classes owned by such stockholders in any manner not prohibited by the General Corporation Law of Delaware. 8.9 REGISTERED STOCKHOLDERS The corporation shall be entitled to recognize the exclusive right of a person registered on its books as the owner of shares to receive dividends and to vote as such owner, shall be entitled to hold liable for calls and assessments the person registered on its books as the owner of shares, and shall not be bound to recognize any equitable or other claim to or interest in such share or shares on the part of another person, whether or not it shall have express or other notice thereof, except as otherwise provided by the laws of Delaware. ARTICLE IX AMENDMENTS The original or other bylaws of the corporation may be adopted, amended or repealed by the stockholders entitled to vote; provided, however, that the corporation may, in its certificate of incorporation, confer the power to adopt, amend or repeal bylaws upon the directors. The fact that such power has been so conferred upon the directors shall not divest the stockholders of the power, nor limit their power to adopt, amend or repeal bylaws. Notwithstanding any other provision of these bylaws or any provision of law which might otherwise permit a lesser vote or no vote, but in addition to any affirmative vote of the holders of the capital stock required by law or by these bylaws, the affirmative vote of at least two-thirds (2/3) of the combined voting power of all of the then-outstanding shares of the corporation entitled to vote shall be required to alter, amend or repeal Article II, Section 2.9 or Section 2.11 of these bylaws or this Article IX or any provision thereof, or to add or amend any other bylaw in order to change or nullify the effect of such provisions, unless such amendment shall be approved by a majority of the directors of the corporation not affiliated or associated with any person or entity holding (or which -19- has announced an intent to obtain) 26% or more of the voting power of the corporation's outstanding capital stock. ARTICLE X DISSOLUTION If it should be deemed advisable in the judgment of the board of directors of the corporation that the corporation should be dissolved, the board, after the adoption of a resolution to that effect by a majority of the whole board at any meeting called for that purpose, shall cause notice to be mailed to each stockholder entitled to vote thereon of the adoption of the resolution and of a meeting of stockholders to take action upon the resolution. At the meeting a vote shall be taken for and against the proposed dissolution. If a majority of the outstanding stock of the corporation entitled to vote thereon votes for the proposed dissolution, then a certificate stating that the dissolution has been authorized in accordance with the provisions of Section 275 of the General Corporation Law of Delaware and setting forth the names and residences of the directors and officers shall be executed, acknowledged, and filed and shall become effective in accordance with Section 103 of the General Corporation Law of Delaware. Upon such certificate's becoming effective in accordance with Section 103 of the General Corporation Law of Delaware, the corporation shall be dissolved. ARTICLE XI CUSTODIAN 11.1 APPOINTMENT OF A CUSTODIAN IN CERTAIN CASES The Court of Chancery, upon application of any stockholder, may appoint one or more persons to be custodians and, if the corporation is insolvent, to be receivers, of and for the corporation when: (i) at any meeting held for the election of directors the stockholders are so divided that they have failed to elect successors to directors whose terms have expired or would have expired upon qualification of their successors; or (ii) the business of the corporation is suffering or is threatened with irreparable injury because the directors are so divided respecting the management of the affairs of the corporation that the required vote for action by the board of directors cannot be obtained and the stockholders are unable to terminate this division; or (iii) the corporation has abandoned its business and has failed within -20- a reasonable time to take steps to dissolve, liquidate or distribute its assets. 11.2 DUTIES OF CUSTODIAN The custodian shall have all the powers and title of a receiver appointed under Section 291 of the General Corporation Law of Delaware, but the authority of the custodian shall be to continue the business of the corporation and not to liquidate its affairs and distribute its assets, except when the Court of Chancery otherwise orders and except in cases arising under Sections 226(a)(3) or 352(a)(2) of the General Corporation Law of Delaware. -21- CERTIFICATE OF AMENDMENT OF BYLAWS OF SYBASE, INC. The undersigned hereby certifies that he is the duly elected and acting Vice President, General Counsel and Secretary of Sybase, Inc. (the "Company") and that Section 3.2 of the Bylaws of the Company was on August 27, 1999 to read as to read as follows: "Section 3.2 Number of Directors The number of directors of the corporation is fixed at seven (7), of which two shall be designated as Class I directors, two shall be designated as Class II directors and three shall be designated as Class III directors. No reduction of the authorized number of directors shall have the effect of removing any director before that director's term of office expires." IN WITNESS WHEREOF, I have executed this certificate as of November 4, 1999. ----------------------- Daniel R. Carl, Vice President, General Counsel and Secretary EX-10.10 4 f79747ex10-10.txt EXHIBIT 10.10 EXHIBIT 10.10 SYBASE, INC. 1992 DIRECTOR OPTION PLAN (as amended February 3, 1999) 1. Purposes of the Plan. The purposes of this 1992 Director Option Plan are to attract and retain the best available personnel for service as Outside Directors (as defined herein) of the Company, to provide additional incentive to the Outside Directors of the Company to serve as Directors, and to encourage their continued service on the Board. All options granted hereunder shall be "non-statutory stock options." 2. Definitions. As used herein, the following definitions shall apply: (a) "Board" means the Board of Directors of the Company. (b) "Code" means the Internal Revenue Code of 1986, as amended. (c) "Common Stock" means the Common Stock of the Company. (d) "Company" means Sybase, Inc., a Delaware corporation. (e) "Continuous Status as a Director" means the absence of any interruption or termination of service as a Director. (f) "Director" means a member of the Board. (g) "Employee" means any person, including officers and Directors, employed by the Company or any Parent or Subsidiary of the Company. The payment of a Director's fee by the Company shall not be sufficient in and of itself to constitute "employment" by the Company. (h) "Exchange Act" means the Securities Exchange Act of 1934, as amended. (i) "Fair Market Value" means, as of any date, the value of Common Stock determined as follows: (i) If the Common Stock is listed on any established stock exchange or a national market system, including without limitation the National Market System of the National Association of Securities Dealers, Inc. Automated Quotation ("NASDAQ") System, the Fair Market Value of a Share of Common Stock shall be the closing sales price for such stock (or the closing bid, if no sales were reported) as quoted on such system or exchange (or the exchange with the greatest volume of trading in Common Stock) on the date of grant, as reported in the Wall Street Journal or such other source as the Board deems reliable; (ii) If the Common Stock is quoted on the NASDAQ System (but not on the National Market System thereof) or regularly quoted by a recognized securities dealer but selling prices are not reported, the Fair Market Value of a share of Common Stock shall be the mean between the bid -1- and asked prices for the Common Stock on the last market trading day prior to the day of determination, as reported in The Wall Street Journal or such other source as the Board deems reliable, or; (iii) In the absence of an established market for the Common Stock, the Fair Market Value thereof shall be determined in good faith by the Board. (j) "Option" means a stock option granted pursuant to the Plan. (k) "Optioned Stock" means the Common Stock subject to an Option. (1) "Optionee" means an Outside Director who receives an Option. (m) "Outside Director" means a Director who is not an Employee. (n) "Parent" means a "parent corporation", whether now or hereafter existing, as defined in Section 424(e) of the Code. (o) "Plan" means this 1992 Director Option Plan. (p) "Share" means a share of the Common Stock, as adjusted in accordance with Section 10 of the Plan. (q) "Subsidiary" means a "subsidiary corporation", whether now or hereafter existing, as defined in Section 424(f) of the Internal Revenue Code of 1986. 3. Stock Subject to the Plan. Subject to the provisions of Section 10 of the Plan, the maximum aggregate number of Shares which may be optioned and sold under the Plan is 700,000 Shares (the "Pool") of Common Stock. The Shares may be authorized but unissued, or reacquired Common Stock. If an Option should expire or become unexercisable for any reason without having been exercised in full, the unpurchased Shares which are subject thereto shall, unless the Plan shall have been terminated, become available for future grant under the Plan. 4. Administration of and Grants of Options under the Plan. (a) Administrator. Except as otherwise required herein, the Plan shall be administered by the Board. (b) Procedure for Grants. The provisions set forth in this Section 4(b) shall not be amended more than once every six months, other than to comport with changes in the Code, the Employee Retirement Income Security Act of 1974, as amended, or the rules thereunder. All grants of Options to Outside Directors under this Plan shall be automatic and non-discretionary and shall be made strictly in accordance with the following provisions: (i) No person shall have any discretion to select which Outside Directors shall be granted Options or to determine the number of Shares to be covered by Options granted to Outside Directors, the exercise price thereof or the timing of the grant of such Options. (ii) Each new Outside Director who first becomes a Director after March 26, 1996 (excluding each Outside Director who, at the time he or she first becomes a Director, holds unvested -2- options to purchase Shares or securities convertible into or exchangeable for Shares as a result of such Outside Director's service as a director of an affiliate of the Corporation), shall be automatically granted an Option to purchase 20,000 Shares upon the date on which such person first becomes a Director, whether through the election by the stockholders of the Company or appointment by the Board to fill a vacancy. In addition, on the first trading day of February in each calendar year beginning with 2000, each Outside Director serving on that date as an Outside Director who has served as an Outside Director for at least five months shall be automatically granted an Option to purchase 16,000 Shares. (iii) The terms of each Option granted hereunder shall be as follows: (A) the term of the Option shall be ten (10) years. (B) except as set forth in Section 8 hereof, the Option shall be exercisable only while the Outside Director remains a Director. (C) the Option shall become exercisable in installments cumulatively with respect to 1/48th of the Optioned Stock one month after the date of grant and as to an additional 1/48th of the Optioned Stock each month thereafter, so that one hundred percent (100%) of the Optioned Stock shall be exercisable four years after the date of grant; provided, however, that in no event shall any Option be exercisable prior to obtaining stockholder approval of the Plan. (iv) In the event that any Option granted tinder the Plan would cause the number of Shares subject to outstanding Options plus the number of Shares previously purchased under Options to exceed the Pool, then the remaining Shares available for Option grant shall be granted under Options to the Outside Directors on a pro rata basis. No further grants shall be made until such time, if any, as additional Shares become available for grant under the Plan through an increase in the number of Shares which may be issued under the Plan or through cancellation or expiration of Options previously granted hereunder. (c) Powers of the Board. Subject to the provisions and restrictions of the Plan, the Board shall have the authority, in its discretion: (i) to determine, upon review of relevant information and in accordance with Section 2(i) of the Plan, the Fair Market Value of the Common Stock; (ii) to interpret the Plan; (iii) to prescribe, amend and rescind rules and regulations relating to the Plan; (iv) to authorize any person to execute on behalf of the Company any instrument required to effectuate the grant of an Option previously granted hereunder; and (v) to make ail other determinations deemed necessary or advisable for the administration of the Plan. (d) Effect of Board's Decision. All decisions, determinations and interpretations of the Board shall be final. 5. Eligibility. Options may be granted only to Outside Directors. All Options shall be automatically granted in accordance with the terms set forth in Section 4(b) hereof. An Outside Director who has been granted an Option may, if he or she is otherwise eligible, be granted an additional Option or Options in accordance with such provisions. The Plan shall not confer upon any Optionee any right with respect to continuation of service as a Director or nomination to serve as a Director, nor shall it interfere in any way with any rights which the Director or the Company may have to terminate his or her directorship at any time. -3- 6. Term of Plan. The Plan shall become effective upon the earlier to occur of its adoption by the Board or its approval by the stockholders of the Company as described in Section 16 of the Plan. It shall continue in effect for a term of ten (10) years unless sooner terminated under Section 11 of the Plan. 7. Exercise Price and Consideration. (a) Exercise Price. The per Share exercise price for Optioned Stock shall be 100% of the Fair Market Value per Share on the date of grant of the Option. (b) Form of Consideration. The consideration to be paid for the Shares to be issued upon exercise of an Option, including the method of payment, shall be determined by the Board and may consist entirely of (i) cash, (ii) check, (iii) promissory note, (iv) other Shares which (A) in the case of Shares acquired upon exercise of an Option, have been owned by the Optionee for more than six (6) months on the date of surrender, and (B) have a Fair Market Value on the date of surrender equal to the aggregate exercise price of the Shares as to which said Option shall be exercised, (v) delivery of a properly executed exercise notice together with such other documentation as the Company and the broker, if applicable, shall require to effect an exercise of the Option and delivery to the Company of the sale or loan proceeds required to pay the exercise price, (vi) any combination of the foregoing methods of payment, or (vii) such other consideration and method of payment for the issuance of Shares to the extent permitted under applicable law. 8. Exercise of Option. (a) Procedure for Exercise; Rights as a Shareholder. Any Option granted hereunder shall be exercisable at such times as are set forth in Section 4(b) hereof; provided, however, that no Options shall be exercisable until stockholder approval of the Plan in accordance with Section 16 hereof has been obtained. An Option may not be exercised for a fraction of a Share. An Option shall be deemed to be exercised when written notice of such exercise has been given to the Company in accordance with the terms of the Option by the person entitled to exercise the Option and full payment for the Shares with respect to which the Option is exercised has been received by the Company. Full payment may consist of any consideration and method of payment allowable under Section 7(b) of the Plan. Until the issuance (as evidenced by the appropriate entry on the books of the Company or of a duly authorized transfer agent of the Company) of the stock certificate evidencing such Shares, no right to vote or receive dividends or any other rights as a shareholder shall exist with respect to the Optioned Stock, notwithstanding the exercise of the Option. A share certificate for the number of Shares so acquired shall be issued to the Optionee as soon as practicable after exercise of the Option. No adjustment will be made for a dividend or other right for which the record date is prior to the date the stock certificate is issued, except as provided in Section 10 of the Plan. Exercise of an Option in any manner shall result in a decrease in the number of Shares which thereafter may be available, both for purposes of the Plan and for sale under the Option, by the number of Shares as to which the Option is exercised. (b) Rule 16b-3. Options granted to Outside Directors must comply with the applicable provisions of Rule 16b-3 promulgated under the Exchange Act or any successor thereto and shall contain such additional conditions or restrictions as may be required thereunder to qualify for the maximum exemption from Section 16 of the Exchange Act with respect to Plan transactions. -4- (c) Termination of Continuous Status as a Director. In the event of an Optionee's Continuous Status as a Director terminates (other than upon the Optionee's death or total and permanent disability (as defined in Section, 22(e)(3) of the Code)), the Optionee may exercise his or her Option, but only within twelve (12) months from the date of such termination, and only to the extent that the Optionee was entitled to exercise it as the date of such termination (but in no event later than the expiration of its ten (10) year term). To the extent that the Optionee was not entitled to exercise an Option at the date of such termination, and to the extent that the Optionee does not exercise such Option (to the extent otherwise so entitled) within the time specified herein, the Option shall terminate. (d) Disability of Optionee, in the event Optionee's Continuous Status as a Director terminates as a result of total and permanent disability (as defined in Section 22(e)(3) of the Code), the Optionee may exercise his or her Option, but only within twelve (12) months from the date of such termination, and only to the extent that the Optionee was entitled to exercise it at the date of such termination (but in no event later than the expiration of its ten (10) year term). To the extent that the Optionee was not entitled to exercise an Option at the date of termination, or if he or she does not exercise such Option (to the extent otherwise so entitled) within the time specified herein, the Option shall terminate. (e) Death of Optionee. In the event of an Optionee's death, the Optionee's estate or a person who acquired the right to exercise the Option by bequest or inheritance may exercise the Option, but only within twelve (12) months following the date of death, and only to the extent that the Optionee was entitled to exercise it at the date of death (but in no event later than the expiration of its ten (10) year term). To the extent that the Optionee was not entitled to exercise an Option at the date of death, and to the extent that the Optionee's estate or a person who acquired the right to exercise such Option does not exercise such Option (to the extent otherwise so entitled) within the time specified herein, the Option shall terminate. 9. Non-Transferability of Options. The Option may not be sold, pledged, assigned, hypothecated, transferred, or disposed of in any manner other than by will or by the laws of descent or distribution and may be exercised, during the lifetime of the Optionee, only by the Optionee. 10. Adjustments Upon Changes in Capitalization, Dissolution, Merger, Asset Sale or Change of Control. (a) Changes in Capitalization. Subject to any required action by the shareholders of the Company, the number of Shares covered by each outstanding Option and the number of Shares which have been authorized for issuance under the Plan but as to which no Options have yet been granted or which have been returned to the Plan upon cancellation or expiration of an Option, as well as the price per Share covered by each such outstanding Option, shall be proportionately adjusted for any increase or decrease in the number of issued Shares resulting from a stock split, reverse stock split, stock dividend, combination or reclassification of the Common Stock, or any other increase or decrease in the number of issued Shares effected without receipt of consideration by the Company; provided, however, that conversion of any convertible securities of the Company shall not be deemed to have been "effected without receipt of consideration." Such adjustment shall be made by the Board, whose determination in that respect shall be final, binding and conclusive. Except as expressly provided herein, no issuance by the Company of shares of stock of any class, or securities convertible into shares of stock of any class, shall affect, and no adjustment by reason thereof shall be made with respect to, the number or price of Shares subject to an Option. -5- (b) Dissolution or Liquidation, in the event of the proposed dissolution or liquidation of the Company, to the extent that an Option has not been previously exercised, it will terminate immediately prior to the consummation of such proposed action; provided, however, that the Company shall give each Optionee notice of such dissolution or liquidation at least thirty (30) days prior to the consummation of such dissolution or liquidation and, upon receipt of such notice, all options shall become fully exercisable. (c) Merger or Asset Sale. In the event of a merger of the Company with or into another corporation or the sale of substantially all of the assets of the Company, outstanding Options may be assumed or equivalent options may be substituted by the successor corporation or a Parent or Subsidiary thereof (the "Successor Corporation"). If an Option is assumed or substituted for, the Option or equivalent option shall continue to be exercisable as provided in Sections 4 and 8 hereof for so long as the Optionee serves as a Director or as a director of the Successor Corporation. Following such assumption or substitution, if the Optionee's status as a Director or as a director of the Successor Corporation, as applicable, is terminated other than upon a voluntary resignation by the Optionee, the Option or option shall become fully exercisable, including as to Shares for which it would not otherwise be exercisable. Thereafter, the Option or equivalent option shall remain exercisable in accordance with Sections 8(c) through (e) above. If the Successor Corporation does not assume an outstanding Option or substitute for it an equivalent option, the Option shall become fully vested and exercisable, including as to Shares for which it would not otherwise be exercisable. In such event the Board shall notify the Optionee that the Option shall be fully exercisable for a period of not less than forty-five (45) days from the date of such notice, and upon the expiration of such period the Option shall terminate. For the purposes of this Section 10(c), an Option shall be considered assumed if, following the merger or sale of assets, the Option confers the right to purchase or receive, for each Share of Optioned Stock subject to the Option immediately prior to the merger or sale of assets, the consideration (whether stock, cash, or other securities or property) received in the merger or sale of assets by holders of Common Stock for each Share held on the effective date of the transaction (and if holders were offered a choice of consideration, the type of consideration chosen by the holders of a majority of the outstanding Shares); provided, however, that if such consideration received in the merger or sale of assets was not solely common stock of the Successor Corporation, the Board may, with the consent of the Successor Corporation, provide for the consideration to be received upon the exercise of the Option, for each Share of Optioned Stock subject to the Option, to be solely common stock of the Successor Corporation equal in fair market value to the per share consideration received by holders of Common Stock in the merger or sale of assets. 11. Amendment and Termination of the Plan. (a) Amendment and Termination. Except as set forth in Section 4 or as further limited by the Rule 16b-3 provisions relating to formula award plans, the Board may at any time amend, alter, suspend, or discontinue the Plan, but no amendment, alteration, suspension, or discontinuation shall be made which would impair the rights of any Optionee under any grant theretofore made, without his or her consent, in addition, to the extent necessary and desirable to comply with Rule 16b-3 promulgated under the Exchange Act (or any other applicable law or regulation), the Company shall obtain shareholder approval of any Plan amendment in such a manner and to such a degree as is required. -6- (b) Effect of Amendment, Etc. Any such amendment, alteration, suspension or discontinuation of the Plan shall not affect Options already granted and such Options shall remain in full force and effect as if this Plan has not been amended, altered, suspended or discontinued. 12. Time of Granting Options. The date of grant of an Option shall, for all purposes, be the date determined in accordance with Section 4(b) hereof. Notice of the determination shall be given to each Outside Director to whom an Option is so granted within a reasonable time after the date of such grant. 13. Conditions Upon Issuance of Shares. Shares shall not be issued pursuant to the exercise of an Option unless the exercise of such Option and the issuance and delivery of such Shares pursuant thereto shall comply with all relevant provisions of law, including, without limitation, the Securities Act of 1933, as amended, the Exchange Act, the rules and regulations promulgated thereunder, state securities laws, and the requirements of any stock exchange or quotation system upon which the Shares may then be listed or quoted, and shall be further subject to the approval of counsel for the Company with respect to such compliance. As a condition to the exercise of an Option, the Company may require the person exercising such Option to represent and warrant at the time of any such exercise that the Shares are being purchased only for investment and without any present intention to sell or distribute such Shares, if, in the opinion of counsel for the Company, such a representation is required by any of the aforementioned relevant provisions of law. Inability of the Company to obtain authority from any regulatory body having jurisdiction, which authority is deemed by the Company's counsel to be necessary to the lawful issuance and sale of any Shares hereunder, shall relieve the Company of any liability in respect of the failure to issue or sell such Shares as to which such requisite authority shall not have been obtained. 14. Reservation of Shares. The Company, during the term of this Plan, will at all times reserve and keep available such number of Shares as shall be sufficient to satisfy the requirements of the Plan. 15. Option Agreement. Options shall be evidenced by written option agreements in such form as the Board shall approve. 16. Shareholder Approval. Continuance of the Plan shall be subject to approval by the shareholders of the Company at or prior to the first annual meeting of shareholder's held subsequent to the first granting of an Option hereunder. Such shareholder approval shall be obtained in the degree and manner required under applicable state and federal law. -7- EX-10.15 5 f79747ex10-15.txt EXHIBIT 10.15 EXHIBIT 10.15 AMENDED AND RESTATED CHANGE OF CONTROL AGREEMENT This COC Agreement (the "COC Agreement") is effective as of June 11, 2001 (the "Effective Date") by and between ________________ (the "Employee") and Sybase, Inc., a Delaware corporation (the "Company"). RECITALS A. The Employee presently serves at the pleasure of the Board of Directors of the Company (the "Board") as the ______________________ of the Company and performs significant strategic and management responsibilities necessary to the continued conduct of the Company' s business and operations. B. The Employee and the Company previously entered into a Statement of Employment Terms dated ____________________ (which was amended ___________________) setting forth the benefits to which the Employee is entitled upon a Change of Control (as defined below) of the Company. C. The Board has determined that it remains in the best interests of the Company and its stockholders to assure that the Company will have the continued dedication and objectivity of the Employee, notwithstanding the possibility, threat or occurrence of a Change of Control (as defined below) of the Company. D. The Board believes that it is imperative to provide the Employee with certain severance benefits upon the Employee's termination of employment following a Change of Control which provide the Employee with enhanced financial security and provide sufficient incentive and encouragement to the Employee to remain with the Company following a Change of Control. E. In order to accomplish the foregoing objectives, the Board has directed the Company, upon execution of this COC Agreement, to commit to the terms provided herein. F. Certain capitalized terms used in the COC Agreement are defined in Section 3 below. In consideration of the mutual covenants herein contained, and in consideration of the continuing employment of Employee by the Company, the parties agree as follows: 1. Term of Employment. The Company and the Employee acknowledge that the Employee's employment is at will, as defined under applicable law, except as may otherwise be provided under the terms of any written employment agreement between the Company and Employee, that is signed on behalf of the Company and now or hereafter in effect. If the Employee's employment terminates for any reason, the Employee shall not be entitled to any payments, benefits, damages, awards or compensation other than as provided by this COC Agreement, together with any written employment agreement then in effect between Employee and the Company, and as may otherwise be available in accordance with the Company's established written employee plans and written policies which are in effect at the time of termination. 2. Severance Benefits. (a) Termination Following A Change of Control. If the Company terminates the Employee's employment at any time within eighteen (18) months after a Change of Control, then the Employee shall be entitled to receive severance benefits as follows, subject to Section 4 below: (i) Involuntary Termination. If the Employee's employment is terminated as a result of Involuntary Termination other than for Cause (as defined in Section 3(b) below), then the Employee shall be entitled to receive severance pay in an amount equal to the sum of (A) twice the greater of (x) the Employee's annual base salary at the time of the Change of Control, or (y) the Employee's annual base salary at the time of such termination, plus (B) one and one-half times the average of (x) the annual cash bonus, if any, received or deferred by the Employee in respect of the most recently completed fiscal year (or, if such bonus, if any, has been earned but not yet received or deferred, the annual cash bonus, if any, to be received or deferred with respect to such fiscal year), and (y) the annualized annual cash bonus that Employee is then eligible to receive for the Company's fiscal year in effect on the date of termination (which shall be calculated by annualizing the objective performance milestones based on the completed fiscal quarters in such fiscal year, and by assuming 100% "on target" satisfaction of any subjective performance milestones); provided, however, that if such termination occurs prior to the completion of the first fiscal quarter, then, subject to the minimum payment obligation set forth below, Employee shall receive severance pay in the amount described in Clause (A) above plus one and one-half times the average of the annual cash bonuses, if any, received or deferred by the employee in respect of the two most recently completed fiscal years (or, if such bonus, if any, has been earned but not yet received or deferred with respect to the most recently completed fiscal year, the average of the prior fiscal year's annual cash bonus and the annual cash bonus, if any, to be received or deferred with respect to the most recently completed fiscal year); provided further, however, notwithstanding the above, if the amount calculated under Clause (B) above is less than one and one-half times the Employee's target annual incentive compensation for the Company's fiscal year in effect at the time of the Change of Control (the "Current Year"), then the amount under Clause (B) shall instead be deemed to be one and one-half times the Employee's target annual compensation for the Current Year. Any severance payments to which the Employee is entitled pursuant to this section shall be paid in a lump sum within thirty (30) days of the Employee's termination. In addition, for a period of twenty-four (24) months after any termination under this Section 2(a)(i), the Company shall be obligated to continue to make available to the Employee and to pay for all health, dental, vision, life, dependent life, long-term disability, accidental death and dismemberment and other similar insurance plans existing on the date of the Employee's termination, or to provide comparable coverage. The Company shall "gross-up" Employee for any income required to be imputed by virtue of providing the benefits set forth in the preceding sentence, such that the net economic result to the Employee will be as if such benefits were provided on a tax-free basis. In addition, any outstanding stock option or restricted stock held by the Employee under the Company's stock option plans, under the Company's subsidiaries' stock option plans and under the stock option plans of corporations that have merged with or into the Company shall automatically have its vesting accelerated (including, for restricted stock, accelerated lapse of a right of repurchase by the Company) as to 100% of the unvested portion of such option or restricted stock on the date of termination, in addition to any portion of the option or restricted stock vested prior to the date of termination after taking into account any acceleration of vesting provided in the option agreement or restricted stock agreement between the Company and the Employee pertaining to such outstanding stock option or restricted stock. (ii) Voluntary Resignation. If the Employee's employment terminates by reason of the Employee's voluntary resignation (and is not an Involuntary Termination or a termination for Cause), then the Employee shall not be entitled to receive severance or other benefits except for such benefits (if any) as may then be established under the Company's then existing written severance and benefits plans and written policies at the time of such termination. (iii) Disability; Death. If the Company terminates the Employee's employment as a result of the Employee's Disability, or such Employee's employment is terminated due to the death of the Employee, then the Employee shall not be entitled to receive severance or other benefits except for those (if any) as may then be established under the Company's then existing written severance and benefits plans and written policies at the time of such Disability or death. (iv) Termination for Cause. If the Employee is terminated for Cause, then the Employee shall not be entitled to receive any severance or other benefits following the date of such termination, and the Company shall have no obligation to provide for the continuation of any health and medical benefit or life insurance plans existing on the date of such termination, other than as required by law. (b) Termination Apart from Change of Control. If the Employee's employment is terminated for any reason either prior to the occurrence of a Change of Control or after the 18-month period following a Change of Control, then the Employee shall be entitled to receive severance and any other benefits only as may then be established under the Company's existing written severance and benefit plans and written policies at the time of such termination. 3. Definition of Terms. The following terms referred to in this COC Agreement shall have the following meanings: (a) Change of Control. "Change of Control" shall mean the occurrence of any of the following events: (i) Any "person" (as such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended) is or becomes the "beneficial owner" (as defined in Rule 13d-3 under said Act), directly or indirectly, of securities of the Company representing fifty percent (50%) or more of the total voting power represented by the Company's then outstanding voting securities, whether by tender offer, or otherwise; or (ii) A change in the composition of the Board, as a result of which fewer than a majority of the directors are Incumbent Directors. "Incumbent Directors" shall mean directors who either (A) are directors of the Company as of the Effective Date, or (B) are elected, or nominated for election, to the Board with the affirmative votes of at least a majority of the Incumbent Directors at the time of such election or nomination (but shall not include an individual whose election or nomination is in connection with an actual or threatened proxy contest relating to the election of directors to the Company); or (iii) The consummation of a merger or consolidation of the Company with any other corporation, other than a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) at least fifty percent (50%) of the total voting power represented by the voting securities of the Company or such surviving entity outstanding immediately after such merger or consolidation, or the liquidation of the Company the sale or disposition by the Company of all or substantially all of the Company's assets. (b) Involuntary Termination. "Involuntary Termination" shall mean (i) without the Employee's express written consent, the assignment to the Employee of any duties or the significant reduction of the Employee's duties, either of which is materially inconsistent with the Employee's position with the Company and responsibilities in effect immediately prior to such assignment, or the removal of the Employee from such position and responsibilities, which is not effected for Disability or for Cause; (ii) a material reduction by the Company in the base salary and/or bonus of the Employee as in effect immediately prior to such reduction; (iii) a material reduction by the Company in the kind or level of employee benefits to which the Employee is entitled immediately prior to such reduction with the result that the Employee's overall benefits package is significantly reduced; (iv) the relocation of the Employee to a facility or a location more than 50 miles from the Employee's then present location, without the Employee's express written consent; (v) any purported termination of the Employee by the Company which is not effected for death or Disability or for Cause, or any purported termination for Cause for which the grounds relied upon are not valid; or (vi) the failure of the Company to obtain the assumption of the terms of this COC Agreement by any successors contemplated in Section 6 below. (c) Cause. "Cause" shall mean (i) any act of personal dishonesty taken by the Employee in connection with his or her responsibilities as an employee and intended to result in substantial personal enrichment of the Employee, (ii) the conviction of a felony, (iii) a willful act by the Employee which constitutes gross misconduct and which is injurious to the Company, and (iv) continued violations by the Employee of the Employee's obligations as an employee of the Company which are demonstrably willful and deliberate on the Employee's part after there has been delivered to the Employee a written demand for performance from the Company which describes the basis for the Company's belief that the Employee has not substantially performed his or her duties. (d) Disability. "Disability" shall mean that the Employee has been unable to perform his or her duties as an employee of the Company as the result of incapacity due to physical or mental illness, and such inability, at least 26 weeks after its commencement, is determined to be total and permanent by a physician selected by the Company or its insurers and acceptable to the Employee or the Employee's legal representative (such agreement as to acceptability not to be unreasonably withheld). Termination resulting from Disability may only be effected after at least 30 days' written notice by the Company of its intention to terminate the Employee's employment. In the event that the Employee resumes the performance of substantially all of his of her duties as an employee of the Company before the termination of his or her employment becomes effective, the notice of intent to terminate shall automatically be deemed to have been revoked. 4. Limitation on Payments. In the event that the severance and other benefits provided for in this COC Agreement or otherwise payable to the Employee (i) constitute "parachute payments" within the meaning of Section 280G of the Internal Revenue Code of 1986, as amended (the "Code") and (ii) but for this Section 4, would be subject to the excise tax imposed by Section 4999 of the Code (the "Excise Tax"), then the Employee's severance benefits under Section 2(a)(i) shall be either (i) delivered in full, or (ii) delivered as to such lesser extent which would result in no portion of such severance benefits being subject to the Excise Tax, whichever of the foregoing amounts, taking into account the applicable federal, state and local income taxes and the Excise Tax, results in the receipt by the Employee on an after-tax basis, of the greatest amount of severance benefits, notwithstanding that all or some portion of such severance benefits may be taxable under Section 4999 of the Code. Unless the Company and the Employee otherwise agree in writing, any determination required under this Section 4 shall be made in writing in good faith by the accounting firm serving as the Company's independent public accountants immediately prior to the Change of Control (the "Accountants"), in good faith consultation with the Employee. In the event of a reduction in benefits hereunder, the Employee shall be given the choice of which benefits to reduce. For purposes of making the calculations required by this Section 4, the Accountants may make reasonable assumptions and approximations concerning applicable taxes and may rely on reasonable, good faith interpretations concerning the application of Sections 280G and 4999 of the Code. The Company and the Employee shall furnish to the Accountants such information and documents as the Accountants may reasonably request in order to make a determination under this Section. The Company shall bear all costs the Accountants may reasonably incur in connection with any calculations contemplated by this Section 4. 5. Remedy. If Employee's benefits are reduced to avoid the Excise Tax pursuant to Section 4 hereof and, notwithstanding such reduction, the IRS determines that Employee is liable for the Excise Tax as a result of the receipt of severance benefits from the Company, then Employee shall be obligated to pay to the Company (the "Repayment Obligation") an amount of money equal to the "Repayment Amount." The Repayment Amount shall be the smallest such amount, if any, as shall be required to be paid to the Company so that Employee's net proceeds with respect to his or her severance benefits hereunder (after taking into account the payment of the Excise Tax imposed on such benefits) shall be maximized. Notwithstanding the foregoing, the Repayment Amount shall be zero if a Repayment Amount of more than zero would not eliminate the Excise Tax. If the Excise Tax is not eliminated through the performance of the Repayment Obligation, Employee shall pay the Excise Tax. The Repayment Obligation shall be discharged within 30 days of either (i) Employee entering into a binding agreement with the IRS as to the amount of Excise Tax liability, or (ii) a final determination by the IRS or a court decision requiring Employee to pay the Excise Tax from which no appeal is available or is timely taken. 6. Successors. (a) Company's Successors. Any successor to the Company (whether direct or indirect and whether by purchase, lease, merger, consolidation, liquidation or otherwise) or to all or substantially all of the Company's business and/or assets shall assume the obligations under this COC Agreement and agree expressly to perform the obligations under this COC Agreement in the same manner and to the same extent as the Company would be required to perform such obligations in the absence of a succession. For all purposes under this COC Agreement, the term "Company" shall include any successor to the Company's business and/or assets which executes and delivers the assumption agreement described in this subsection (a) or which becomes bound by the terms of this COC Agreement by operation of law. (b) Employee's Successors. The terms of this COC Agreement and all rights of the Employee hereunder shall inure to the benefit of, and be enforceable by, the Employee's personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees. 7. Notice. (a) General. Notices and all other communications contemplated by this COC Agreement shall be in writing and shall be deemed to have been duly given when personally delivered or when mailed by U.S. registered or certified mail, return receipt requested and postage prepaid. In the case of the Employee, mailed notices shall be addressed to him or her at the home address which he or she most recently communicated to the Company in writing. In the case of the Company, mailed notices shall be addressed to its corporate headquarters, and all notices shall be directed to the attention of its Secretary. (b) Notice of Termination by the Company. Any termination by the Company of the Employee's employment with the Company at any time within eighteen (18) months following a Change of Control shall be communicated by a notice of termination to the Employee at least five (5) days prior to the date of such termination, given in accordance with Section 7(a) of this COC Agreement. Such notice shall indicate the specific termination provision or provisions in this COC Agreement relied upon (if any), shall set forth in reasonable detail the facts and circumstances claimed to provide a basis for termination under the provision or provisions so indicated, and shall specify the termination date. (c) Notice by the Employee of Involuntary Termination by the Company. In the event the Employee determines that an Involuntary Termination has occurred at any time within eighteen (18) months following a Change of Control, the Employee shall give written notice that such Involuntary Termination has occurred as set forth in this Section 7(c). Such notice shall be delivered by the Employee to the Company in accordance with Section 7(a) of this COC Agreement within ninety (90) days following the date on which such Involuntary Termination occurred (or, if such Involuntary Termination occurred as a result of more than one event set forth in Section 3(b), within ninety (90) days following the latest of such events), shall indicate the specific provision or provisions in this COC Agreement upon which the Employee relied to make such determination and shall set forth in reasonable detail the facts and circumstances claimed to provide a basis for such determination. The failure by the Employee to include in the notice any fact or circumstance which contributes to a showing of Involuntary Termination shall not waive any right of the Employee hereunder or preclude the Employee from asserting such fact or circumstance in enforcing his or her rights hereunder. 8. Miscellaneous Provisions. (a) No Duty to Mitigate. The Employee shall not be required to mitigate the amount of any payment contemplated by this COC Agreement (whether by seeking new employment or in any other manner), nor shall any such payment be reduced by any earnings that the Employee may receive from any other source. (b) Waiver. No provision of this COC Agreement shall be modified, waived or discharged unless the modification, waiver or discharge is agreed to in writing and signed by the Employee and by an authorized officer of the Company (other than the Employee). No waiver by either party of any breach of, or of compliance with, any condition or provision of this COC Agreement by the other party shall be considered a waiver of any other condition or provision or of the same condition or provision at another time. (c) Entire Agreement. Except with respect to the terms of any written employment agreement, if any, by and between the Company and Employee that is signed on behalf of the Company, no agreements, representations or understandings (whether oral or written and whether express or implied) which are not expressly set forth in this COC Agreement have been made or entered into by either party with respect to the subject matter hereof. This COC Agreement supercedes in its entirety the ______, 19__ Statement of Employment Terms between the parties and the Amendment thereto dated _______________. (d) Choice of Law. The validity, interpretation, construction and performance of this COC Agreement shall be governed by the laws of the State of California. (e) Severability. The invalidity or unenforceability of any provision or provisions of this COC Agreement shall not affect the validity or enforceability of any other provision hereof, which shall remain in full force and effect. (f) Arbitration. Any dispute or controversy arising under or in connection with this COC Agreement shall be settled exclusively by arbitration in Contra Costa County, California, in accordance with the rules of the American Arbitration Association then in effect. Judgment may be entered on the arbitrator's award in any court having jurisdiction. Punitive damages shall not be awarded. (g) No Assignment of Benefits. The rights of any person to payments or benefits under this COC Agreement shall not be made subject to option or assignment, either by voluntary or involuntary assignment or by operation of law, including (without limitation) bankruptcy, garnishment, attachment or other creditor's process, and any action in violation of this subsection (f) shall be void. (h) Employment Taxes. Subject to Section 4, all payments made pursuant to this COC Agreement will be subject to withholding of applicable income and employment taxes. (i) Assignment by Company. The Company may assign its rights under this COC Agreement to an affiliate, and an affiliate may assign its rights under this COC Agreement to another affiliate of the Company or to the Company; provided, however, that no assignment shall be made if the net worth of the assignee is less than the net worth of the Company at the time of assignment. In the case of any such assignment, the term "Company" when used in a section of this COC Agreement shall mean the corporation that actually employs the Employee. (j) Counterparts. This COC Agreement may be executed in counterparts, each of which shall be deemed an original, but all of which together will constitute one and the same instrument. IN WITNESS WHEREOF, each of the parties has executed this COC Agreement, in the case of the Company by its duly authorized officer, as of the Effective Date. SYBASE, INC. By - -------------------------------- ------------------------------------ Name John S. Chen President and Chief Executive Officer EX-10.16 6 f79747ex10-16.txt EXHIBIT 10.16 EXHIBIT 10.16 AMENDED AND RESTATED CHANGE OF CONTROL AGREEMENT This Amended and Restated Change of Control Agreement (the "COC Agreement") is effective as of June 11, 2001 (the "COC Agreement Date") by and between __________ (the "Employee") and Sybase, Inc., a Delaware corporation (the "Company"). RECITALS A. The Employee presently serves at the pleasure of the Board of Directors of the Company (the "Board") as the ___________________________________ of the Company and performs significant strategic and management responsibilities necessary to the continued conduct of the Company's business and operations. B. The Employee and the Company previously entered into a Statement of Employment Terms dated ____________________ (which was amended ___________________) setting forth the benefits to which the Employee is entitled upon a Change of Control (as defined below) of the Company. C. The Board has determined that it remains in the best interests of the Company and its stockholders to assure that the Company will have the continued dedication and objectivity of the Employee, notwithstanding the possibility, threat or occurrence of a Change of Control of the Company. D. The Board believes that it is imperative to provide the Employee with benefits following a Change of Control which are competitive in the market place and which provide sufficient incentive and encouragement to the Employee to remain with the Company, and the Board therefore has determined that it is in the best interests of the Company to amend and restate the terms applicable upon a Change of Control. E. In order to accomplish the foregoing objectives, the Board has directed the Company, upon execution of this COC Agreement by the Employee, to agree to the terms provided herein. F. Certain capitalized terms used in the COC Agreement are defined in Section 3 below. In consideration of the mutual covenants herein contained, and in consideration of the continuing employment of Employee by the Company, the parties agree as follows: 1. Term of Employment. The Company and the Employee acknowledge that the Employee's employment is at will, as defined under applicable law, except as may otherwise be provided under the terms of any written employment agreement between the Company and Employee that is signed on behalf of the Company and now or hereafter is in effect. If the Employee's employment terminates for any reason, the Employee shall not be entitled to any payments, benefits, damages, awards or compensation other than as provided by this COC Agreement, together with any written employment agreement then in effect between Employee and the Company, and as may otherwise be available in accordance with the Company's established written employee plans and written policies which are in effect at the time of termination. 2. Change of Control Benefits. (a) Upon the occurrence of a Change of Control, and regardless of whether Employee has been terminated, the Employee shall be entitled to receive a payment in an amount equal to the sum of (A) twice the Employee's annual base salary at the time of the Change of Control, plus (B) twice the average of (x) the annual cash bonus, if any, received or deferred by the Employee in respect of the most recently completed fiscal year (or, if such bonus, if any, has been earned but not yet received or deferred, the annual cash bonus, if any, to be received or deferred with respect to such fiscal year), and (y) the annualized annual cash bonus that Employee is then eligible to receive for the Company's fiscal year in effect on the date of the Change of Control (which shall be calculated by annualizing the objective performance milestones based on the completed fiscal quarters in such fiscal year, and by assuming 100% "on target" satisfaction of any subjective performance milestones); provided, however, that if such Change in Control occurs prior to the completion of the first fiscal quarter, then Employee shall instead receive a payment in the amount described in clause (A) above plus twice the average of the annual cash bonuses, if any, received or deferred by the employee in respect of the two most recently completed fiscal years (or, if such bonus, if any, has been earned but not yet received or deferred with respect to the most recently completed fiscal year, the average of the prior fiscal year's annual cash bonus and the annual cash bonus, if any, to be received or deferred with respect to the most recently completed fiscal year); provided further, however, notwithstanding the above, if the amount calculated under Clause (B) above is less than two times the Employee's target annual incentive compensation for the Company's fiscal year in effect at the time of the Change of Control (the "Current Year"), then the amount under Clause (B) shall instead be deemed to be two times the Employee's target annual compensation for the Current Year. Any payments to which the Employee is entitled pursuant to this section shall be paid in a lump sum within thirty (30) days of the Change of Control. In addition, if within the eighteen (18) month period following any Change of Control the Employee's employment terminates for any reason other than Cause, the Company shall be obligated for the twenty -four (24) month period following the date of termination to continue to make available to the Employee and to pay for all health, dental, vision, life, dependent life, long-term disability, accidental death and dismemberment and other similar insurance plans existing on the date of termination, or to provide comparable coverage. The Company shall "gross-up" Employee for any income required to be imputed by virtue of providing the benefits set forth in the preceding sentence, such that the net economic result to the Employee will be as if such benefits were provided on a tax-free basis. In addition, any outstanding stock option or restricted stock held by the Employee under the Company's stock option plans, under the Company's subsidiaries' stock option plans and under the stock option plans of corporations that have merged with or into the Company shall automatically have its vesting accelerated (including, for restricted stock, accelerated lapse of a right of repurchase by the Company) as to 100% of the unvested portion of such option or restricted stock on the date of termination. (b) Termination Apart from Change of Control. Aside from the amounts specified above payable in the event of a Change of Control, if the Employee's employment is terminated for any reason, then the Employee shall be entitled to receive severance and any other benefits only as may then be established under the Company's existing written severance and benefit plans and written policies and under any written employment agreement in effect at the time of such termination. 3. Definition of Terms. The following terms referred to in this COC Agreement shall have the following meanings: (a) Change of Control. "Change of Control" shall mean the occurrence of any of the following events: (i) Any "person" (as such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended) is or becomes the "beneficial owner" (as defined in Rule 13d-3 under said Act), directly or indirectly, of securities of the Company representing fifty percent (50%) or more of the total voting power represented by the Company's then outstanding voting securities, whether by tender offer, or otherwise; or (ii) A change in the composition of the Board, as a result of which fewer than a majority of the directors are Incumbent Directors. "Incumbent Directors" shall mean directors who either (A) are directors of the Company as of the COC Agreement Date, or (B) are elected, or nominated for election, to the Board with the affirmative votes of at least a majority of the Incumbent Directors at the time of such election or nomination (but shall not include an individual whose election or nomination is in connection with an actual or threatened proxy contest relating to the election of directors to the Company); or (iii) The consummation of a merger or consolidation of the Company with any other corporation, other than a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) at least fifty percent (50%) of the total voting power represented by the voting securities of the Company or such surviving entity outstanding immediately after such merger or consolidation, or the liquidation of the Company the sale or disposition by the Company of all or substantially all of the Company's assets. (b) Cause. "Cause" shall mean (i) any act of personal dishonesty taken by the Employee in connection with his or her responsibilities as an employee and intended to result in substantial personal enrichment of the Employee, (ii) the conviction of a felony, (iii) a willful act by the Employee which constitutes gross misconduct and which is injurious to the Company, and (iv) continued violations by the Employee of the Employee's obligations as an employee of the Company which are demonstrably willful and deliberate on the Employee's part after there has been delivered to the Employee a written demand for performance from the Company which describes the basis for the Company's belief that the Employee has not substantially performed his or her duties. (c) Disability. "Disability" shall mean that the Employee has been unable to perform his or her duties as an employee of the Company as the result of incapacity due to physical or mental illness, and such inability, at least 26 weeks after its commencement, is determined to be total and permanent by a physician selected by the Company or its insurers and acceptable to the Employee or the Employee's legal representative (such agreement as to acceptability not to be unreasonably withheld). Termination resulting from Disability may only be effected after at least 30 days' written notice by the Company of its intention to terminate the Employee's employment. In the event that the Employee resumes the performance of substantially all of his of her duties as an employee of the Company before the termination of his or her employment becomes effective, the notice of intent to terminate shall automatically be deemed to have been revoked. 4. Excise Tax. In the event that the severance and other benefits provided for in this COC Agreement or otherwise payable to the Employee (i) constitute "parachute payments" within the meaning of Section 280G of the Internal Revenue Code of 1986, as amended (the "Code") and (ii) but for this Section 4, would be subject to the excise tax imposed by Section 4999 of the Code (the "Excise Tax"), then the Employee shall receive (a) a payment from the Company sufficient to pay the Excise Tax plus (b) an additional payment from the Company sufficient to pay the Excise Tax and federal and state income and employment taxes arising from the payments made by the Company to the Employee pursuant to this sentence. Unless the Company and the Employee otherwise agree in writing, the determination of the Employee's Excise Tax liability and the amount required to be paid under this Section 4 shall be made in writing in good faith by the accounting firm serving as the Company's independent public accountants immediately prior to the Change of Control (the "Accountants"), in good faith consultation with the Employee. For purposes of making the calculations required by this Section 4, the Accountants may make reasonable assumptions and approximations concerning applicable taxes and may rely on reasonable, good faith interpretations concerning the application of Sections 280G and 4999 of the Code. The Company and the Employee shall furnish to the Accountants such information and documents as the Accountants may reasonably request in order to make a determination under this Section. The Company shall bear all costs the Accountants may reasonably incur in connection with any calculations contemplated by this Section 4. 5. Successors. (a) Company's Successors. Any successor to the Company (whether direct or indirect and whether by purchase, lease, merger, consolidation, liquidation or otherwise) or to all or substantially all of the Company's business and/or assets shall assume the obligations under this COC Agreement and agree expressly to perform the obligations under this COC Agreement in the same manner and to the same extent as the Company would be required to perform such obligations in the absence of a succession. For all purposes under this COC Agreement, the term "Company" shall include any successor to the Company's business and/or assets which executes and delivers the assumption agreement described in this subsection (a) or which becomes bound by the terms of this COC Agreement by operation of law. (b) Employee's Successors. The terms of this COC Agreement and all rights of the Employee hereunder shall inure to the benefit of, and be enforceable by, the Employee's personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees. 6. Notices. Notices and all other communications contemplated by this COC Agreement shall be in writing and shall be deemed to have been duly given when personally delivered or when mailed by U.S. registered or certified mail, return receipt requested and postage prepaid. In the case of the Employee, mailed notices shall be addressed to him or her at the home address which he or she most recently communicated to the Company in writing. In the case of the Company, mailed notices shall be addressed to its corporate headquarters, and all notices shall be directed to the attention of its Secretary. 7. Miscellaneous Provisions. (a) No Duty to Mitigate. The Employee shall not be required to mitigate the amount of any payment contemplated by this COC Agreement (whether by seeking new employment or in any other manner), nor shall any such payment be reduced by any earnings that the Employee may receive from any other source. (b) Waiver. No provision of this COC Agreement shall be modified, waived or discharged unless the modification, waiver or discharge is agreed to in writing and signed by the Employee and by an authorized officer of the Company (other than the Employee). No waiver by either party of any breach of, or of compliance with, any condition or provision of this COC Agreement by the other party shall be considered a waiver of any other condition or provision or of the same condition or provision at another time. (c) Entire Agreement. Except with respect to the terms of any written employment agreement, if any, by and between the Company and Employee that is signed on behalf of the Company, no agreements, representations or understandings (whether oral or written and whether express or implied) which are not expressly set forth in this COC Agreement have been made or entered into by either party with respect to the subject matter hereof. This COC Agreement supercedes in its entirety the ______, 19__ Statement of Employment Terms between the parties and the Amendment thereto dated _______________. (d) Choice of Law. The validity, interpretation, construction and performance of this COC Agreement shall be governed by the laws of the State of California. (e) Severability. The invalidity or unenforceability of any provision or provisions of this COC Agreement shall not affect the validity or enforceability of any other provision hereof, which shall remain in full force and effect. (f) Arbitration. Any dispute or controversy arising under or in connection with this COC Agreement shall be settled exclusively by arbitration in the County of Contra Costa, California, in accordance with the rules of the American Arbitration Association then in effect. Judgment may be entered on the arbitrator's award in any court having jurisdiction. Punitive damages shall not be awarded. (g) No Assignment of Benefits. The rights of any person to payments or benefits under this COC Agreement shall not be made subject to option or assignment, either by voluntary or involuntary assignment or by operation of law, including (without limitation) bankruptcy, garnishment, attachment or other creditor's process, and any action in violation of this subsection (g) shall be void. (h) Employment Taxes. Subject to Section 4, all payments made pursuant to this COC Agreement will be subject to withholding of applicable income and employment taxes. (i) Assignment by Company. The Company may assign its rights under this COC Agreement to an affiliate, and an affiliate may assign its rights under this COC Agreement to another affiliate of the Company or to the Company; provided, however, that no assignment shall be made if the net worth of the assignee is less than the net worth of the Company at the time of assignment. In the case of any such assignment, the term "Company" when used in a section of this COC Agreement shall mean the corporation that actually employs the Employee. (j) Counterparts. This COC Agreement may be executed in counterparts, each of which shall be deemed an original, but all of which together will constitute one and the same instrument. IN WITNESS WHEREOF, each of the parties has executed this COC Agreement, in the case of the Company by its duly authorized officer, as of the COC Agreement Date. SYBASE, INC. By - -------------------------------- -------------------------------- Employee Daniel R. Carl Vice President, General Counsel and Secretary EX-10.21 7 f79747ex10-21.txt EXHIBIT 10.21 EXHIBIT 10.21 June 8, 2001 Richard J. Moore 5821 Town Bay Drive Boca Raton, FL 33486 Dear Dick: I am very pleased to offer you the position of Senior Vice President and General Manager reporting to me. In this position, you will be responsible for a number of Sybase's major vertical initiatives. We anticipate you will make significant contributions and look forward to your start date of July 1, 2001. Your compensation will consist of the following components: I. Base Salary - $250,000 per year to be paid semi-monthly at $10,416.67. Sybase currently conducts annual total compensation review for its officers during the first quarter of the year, normally in January. II. Variable Incentive Bouus -- You will be eligible for the FY2001 annual incentive bonus of $150,000. You will be guaranteed one quarter of this bonus for Q3 2001 in the amount of $37,500. Your target bonus for Q4 2001 will be $37,500. III. Stock Options (1) Sybase Stock Options A recommendation will be made for you to be awarded an option to purchase 200,000 shares of Sybase common stock. The stock option price will be the closing price as quoted on NYSE on the date the option is granted. (2) FFI Stock Options A recommendation will be made for you to be awarded an option to purchase 1,000,000 shares of FFI common stock effective on your start date of employment. The above Sybase and FFI options with respect to 6/48 of the shares will vest after the first six (6) months and the options with respect to 1/48 of the shares will vest each month for the following forty-two (42) months. Sybase and FFI have the right to cancel any unvested portion of your shares if your employment with the company is ended for any reason before four (4) years. If you do not receive your stock option agreements within four to six weeks of your employment start date, please contact Sybase Corporate Stock Administration immediately. Additional shares of Sybase options may be recommended for you on an annual basis based on your job performance and contributions. IV. Change of Control Agreement -- A change of control agreement will be recommended for you shortly after your employment start date. You will be receiving the agreement from Nita C. White-Ivy, Vice President of Worldwide Human Resources shortly after your first week of employment. V. Employee Benefits -- You will be covered by the Sybase employee benefits program. A summary of these benefits are enclosed. VI. New York Housing -- While primarily working out of the New York office, the Company will pay rental for a reasonable, furnished efficiency apartment for your housing in New York. This offer is contingent upon: (1) satisfactory verification of your current and previous employment history, background checks and your academic degrees; and (2) completion and signing of the enclosed Sybase Employment form, and Notification and Authorization to Conduct Background Investigation form. The enclosed Non-Disclosure Agreement must be signed by all Sybase employees as a condition of employment, and Section 1 of the enclosed U.S. Department of Justice Immigration and Naturalization Service I-9 Form also must be completed. The enclosed Personal Data Sheet and W-4 must be completed to ensure that you receive your paychecks and other employee benefits in a timely manner. PLEASE SIGNIFY ACCEPTANCE OF THIS OFFER BY SIGNING ONE COPY OF THIS OFFER LETTER, INDICATING YOUR STARTING DATE, AND RETURNING IT WITH THE AFOREMENTIONED ENCLOSED DOCUMENTS BY JUNE 18, 2001 TO NITA C. WHITE-IVY AT HUMAN RESOURCES. We would like to welcome you and introduce you to Sybase by inviting you to our New Hire Orientation on your first Monday with the company. You can look forward to receiving valuable information on your benefits package. U. S. Federal law requires that we make this offer of employment contingent upon being able to produce proof that you have the legal right to work in the United States. Because satisfactory evidence of such proof must be presented in order for you to start employment, please bring your choice of required acceptable documentation (as stated on the enclosed I-9) with you on your first day to the New Hire Orientation. If your start date does not coincide with your New Hire Orientation schedule, please meet with Human Resources on your first day to review your I-9 documents. We are very proud of our company's continuing success and look forward to your joining our very committed and hardworking team. Sincerely, /S/ JOHN S. CHEN John S. Chen Chairman, President and CEO, Sybase, Inc. Enclosures I will start work at Sybase on July 1, 2001. I certify that as of this date I will not be employed by, on the payroll of, or otherwise compensated by any other company, and that I have not received any consideration or promise of consideration from any other company based on my acceptance of employment with Sybase. I can produce satisfactory proof on my start date that I have legal right to work in the United States. I understand and agree that if I am hired by Sybase, I will be free to resign my employment at any time with or with out cause and that Sybase may also terminate my employment at any time with or without cause. I understand that although Sybase has Human Resources policies relating to other terms and conditions of my employment and that these policies and conditions may be changed from time to time by Sybase at its discretion, the voluntary "at will" nature of my employment may not be changed. This employment offer, and an employment and change of control agreement which will be provided to me shortly after my employment start date, constitute the entire agreement and understanding between Sybase and me with regard to its offer of employment and supersedes any other negotiations, agreements, promises, understandings, and representations, whether written or oral. /S/ RICHARD J. MOORE 6/18/2001 - ------------------------------ ----------------- Richard J. Moore Date Please indicate your termination date with current employer: 3/12/2001 --------- Name of current employer: Cygent Inc. ----------- EX-10.23 8 f79747ex10-23.txt EXHIBIT 10.23 EXHIBIT 10.23 AMENDED AND RESTATED EMPLOYMENT AGREEMENT THIS AMENDED AND RESTATED EMPLOYMENT AGREEMENT, dated as of June 11, 2001 (this "Agreement"), by and between Sybase, Inc., a Delaware corporation ("Company") and John Chen ("Employee"). Recitals A. Company and Employee entered into an Employment Agreement dated July 11, 1997 (the "Initial Agreement"). B. The Board of Directors believes it is imperative to provide Employee with employment terms which are competitive in the market place, and accordingly the parties desire to amend and restate the terms of Employee's employment as follows. NOW, THEREFORE, the parties hereto hereby agree as follows: 1. Duties. Employee shall hold the title of Chairman of the Board, President and Chief Executive Officer, and shall perform such functions and duties in such capacity as are designated by the Board of Directors of the Company. During the term of employment, Employee shall be employed by the Company as a regular full-time employee, and shall carry out his duties and responsibilities in a diligent, competent and professional manner. 2. Compensation. (a) Base Salary. Employee receives an annual base salary which has been established by the Board of Directors, payable on a semi-monthly basis. Employee's base salary shall be subject to periodic review and adjustment from time to time in accordance with the Company's then-current policies. Currently, such review is made by the Compensation Committee of the Board of Directors on an annual basis. (b) Incentive Compensation. Employee is also eligible to participate in the Company's executive incentive programs with annual target incentive compensation established by the Board of Directors. Such target compensation is subject to periodic review and adjustment from time to time in accordance with the Company's then-current policies. Currently, such review is made by the Compensation Committee of the Board of Directors on an annual basis. Such annual incentive bonuses are paid once per year. (c) Benefit Plans. Employee's prior employer maintained term life insurance, AD&D insurance and long term disability policies in the name of Employee for Employee's -1- benefit (the "Individual Policies"). Company shall continue to maintain such Individual Policies during the term of Employee's employment and any post-termination period specified in this Agreement. Employee will be eligible to participate in and receive benefits under the Company's employee benefit plans and policies in effect from time to time, subject to the terms, conditions and eligibility requirements of the particular plans. Such plans may include stock benefit plans, paid vacation, paid sabbatical leave, health care, life insurance, accidental death and disability, short- and long-term disability, and/or savings plans provided by, through, or on behalf of the Company to employees in the United States. The Company may change, amend, modify or terminate any benefit plan from time to time without prior notice to Employee. Sybase currently offers a cafeteria style benefits program and allocates an amount ("Nautilus Benefit Allowance") to each employee for the employee to allocate to various benefits that the employee can choose between. The benefit coverages that Employee received from his prior employer are specified in that certain "Siemens Pyramid Benefit Coverage for John Chen, Chairman, President and CEO" previously provided to Mitchell Kertzman. The benefit coverages appearing on such list, excluding the Individual Policies and those under the heading "other", are referred to as the "Former Minimum Benefits". The Company shall provide employee with benefits that are at least substantially comparable to the Former Minimum Benefits (except that (i) the maximum lifetime benefit under the group medical plan will be $1,000,000 and (ii) to the extent the employer matching contribution under the 401(k) plan is lower than under the Former Minimum Benefits, Employee shall be provided a bonus equivalent to such difference, grossed up to reflect the pretax nature of a 401(k) contribution), it being understood that the choice of benefit provider is entirely at the discretion of the Company and, that to the extent the benefits can be covered by the Nautilus Benefit Allowance, Employee will apply such allowance to them. Any cost of providing the benefits substantially comparable to the Former Minimum Benefits in excess of the Nautilus Benefit Allowance shall be the Company's expense. In addition, Company shall (i) reimburse employee for medical, legal, financial planning and tax preparation expenses up to an aggregate maximum of $10,000 per year (ii) permit Employee to fly first class on business trips (other aspects of travel to be consistent with Company travel policies); and (iii) provide a car allowance of $18,000 per year. (d) Stock Option Grant. Under the Initial Agreement, Employee was granted stock options to purchase an aggregate of 500,000 shares of the Company's Common Stock. Subsequent option grants have been made. Future option grants , if any, shall be entirely at the discretion of the Compensation Committee. It is acknowledged that the Compensation Committee's current practice is to make annual stock option grants to executive officers in connection with its annual review of executive compensation. It is also -2- acknowledged that one guideline currently considered within the Compensation Committee's current option philosophy framework regarding option grants is to make subsequent annual grants such that the total amount of an officer's unvested shares is comparable to the options that the Company would have to then offer in order to recruit a new person into such officer's position. The foregoing guideline is only one of several factors considered by the Compensation Committee and that guideline together with any other guidelines and factors may be changed at any time. (e) Withholding; Deductions. Unless otherwise specified herein, the Company shall make such deductions, withholdings and other payments from all sums payable to Employee which Employee requests, or which are required by law for taxes and other charges. 3. Nondisclosure Agreement. Concurrently with the execution of the Initial Agreement, Employee executed an Employee Nondisclosure and Assignment of Inventions Agreement ("Nondisclosure Agreement"). 4. Change of Control. Concurrently with the execution of this Agreement, Employee and the Company have entered into an Amended and Restated Change of Control Agreement ("COC Agreement"). In the event of a Change of Control (as defined in the COC Agreement), Employee shall be entitled to the severance benefits specified in such COC Agreement and shall not be entitled to severance in accordance with Section 5 below for any termination of employment occurring within eighteen months following a Change of Control. 5. Compensation Upon Termination or Resignation. (a) Voluntary or For Cause. Upon termination for Cause (as defined below) or upon Employee's death, Disability (as defined below) or voluntary resignation (except as provided in Section 5(c)), the Company shall pay to Employee (or to his estate in the event of his death) in a lump sum all accrued unpaid compensation earned by the Employee prior to the effective date of termination. Employee's rights under the Company's benefit plans shall be determined under the provisions of those plans. (b) Termination by the Company Without Cause. In the event that the Company terminates Employee without Cause, the Company shall (A) pay to Employee an amount equal to the sum of (i) one and one-half times the Employee's then-current annual base salary plus (ii) one and one-half times the Employee's target annual cash bonus for the Company's fiscal year in effect on the date of termination, which amount shall be payable in three installments (net of all applicable taxes and deductions) as follows: 50% of the amount within seven days of the date of termination, 25% on the date six months following the date of termination and 25% on the date one year following date of termination; (B) continue to make available, at the Company's expense, the benefits specified in Section 2(c) above for a period of 18 months following such date of termination, and (C) provide that -3- stock options held by the Employee under the Company's stock option plans, under the Company's subsidiaries' stock option plans and under the stock option plans of corporations that have merged with or into the Company shall automatically have their vesting accelerated (including, for restricted stock, accelerated lapse of a right of repurchase by the Company) as to 100% of the unvested portion of such options, and as to 50% of the unvested portion of such restricted stock, on the date of termination, in addition to any portion of the restricted stock vested prior to the date of termination after taking into account any acceleration of vesting provided in the restricted stock agreement between the Company and the Employee pertaining to such outstanding restricted stock. The amount of the severance payment payable pursuant to Clause A and the continuation of benefits specified in Clause B above shall not be decreased as a result of compensation and/or benefits received by the Employee from any subsequent employer. (c) Definition of Cause. For purposes of this Agreement, "Cause" shall mean any of the following: (i) any act of personal dishonesty taken by the Employee in connection with his or her responsibilities as an employee and intended to result in substantial personal enrichment of the Employee, (ii) the conviction of a felony, (iii) a willful act by the Employee which constitutes gross misconduct and which is injurious to the Company, or (iv) continued violations by the Employee of the Employee's obligations as an employee of the Company which are demonstrably willful and deliberate on the Employee's part after there has been delivered to the Employee a written demand for performance from the Company which describes the basis for the Company's belief that the Employee has not substantially performed his or her duties. (d) Disability. "Disability" shall have the meaning ascribed to it in the COC Agreement. (e) Involuntary Termination. Employee shall be deemed to have been terminated by the Company other than for Cause in the event of an Involuntary Termination. "Involuntary Termination" shall mean (i) without the Employee's express written consent, the assignment to the Employee of any duties or the significant reduction of the Employee's duties, either of which is materially inconsistent with the Employee's position with the Company and responsibilities in effect immediately prior to such assignment, or the removal of the Employee from such position and responsibilities, which is not effected for Disability or for Cause; (ii) a material reduction by the Company in the base salary and/or target bonus of the Employee as in effect immediately prior to such reduction; (iii) a material reduction by the Company in the kind or level of employee benefits to which the Employee is entitled immediately prior to such reduction with the result that the Employee's overall benefits package is significantly reduced (other than a nondiscriminatory reduction affecting the Company's employees generally) ; or (iv) the relocation of the Employee to a facility or a location more than 75 miles from San Francisco, without the Employee's express written consent. -4- (f) Breach of Nondisclosure Agreement. Notwithstanding any provisions herein to the contrary, the Company's obligations under this Section 5 to pay any severance or otherwise extend benefits or stock option/restricted stock vesting shall terminate immediately upon any intentional breach by Employee of the Nondisclosure Agreement. 6. No Conflict. Employee represents and warrants that execution of this Agreement and the Nondisclosure Agreement, and performance of Employee's obligations hereunder and thereunder, will not conflict with, or result in a violation or breach of any other agreement to which Employee is a party, or any judgment, order or decree to which Employee is subject. 7. Governing Law. This Agreement shall be governed by and construed in accordance with the laws of California. 8. Entire Agreement. This Agreement, together with the COC Agreement and Nondisclosure Agreement, sets forth the entire agreement and understanding of the parties with respect to the subject matter hereof, and supersedes the July 11, 1997 Employment Agreement and any other written or oral negotiations, agreements, understandings, representations or practices. Any waiver, modification or amendment of this Agreement shall be effective only if in writing and signed by the parties hereto. 9. Arbitration. Any dispute or controversy arising under or in connection with this Agreement shall be settled exclusively by arbitration in the County of Contra Costa, California, in accordance with the rules of the American Arbitration Association then in effect. Judgment may be entered on the arbitrator's award in any court having jurisdiction. IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the date first written above. EMPLOYEE: SYBASE, INC. By: - -------------------------------- -------------------------------- John Chen Daniel R. Carl 328 Pheasant Run Drive Vice President, General Counsel Danville, CA 94506 and Secretary -5- EX-10.27(A) 9 f79747ex10-27a.txt EXHIBIT 10.27(A) EXHIBIT 10.27 (A) SECOND AMENDMENT TO CORPORATE HEADQUARTERS LEASE THIS SECOND AMENDMENT TO CORPORATE HEADQUARTERS LEASE (this "Amendment") is made and entered into effective as of the 13th day of December, 2001, by and between WDS-DUBLIN, LLC, a California limited liability company ("Landlord"), and SYBASE, INC., a Delaware corporation ("Tenant"). The "Lease" shall mean the Existing Lease as defined in the First Amendment as modified by such First Amendment. RECITALS A. Landlord has represented to Tenant that Building B within the Premises will receive a certificate of occupancy, and therefore be delivered, prior to Building A receiving its certificate of occupancy and being delivered. B. Given this, there has been a disagreement between the parties as to when rent will commence under the Lease. NOW, THEREFORE, in consideration of the recitals set forth above, the covenants and agreements contained herein, and other good and valuable consideration, the receipt, adequacy and total sufficiency of which are hereby acknowledged, Landlord and Tenant hereby agree as set forth below. All terms not otherwise defined herein shall have the meaning ascribed to them in the Lease. 1. References in the Lease to "First Increment" shall mean the first building for which a certificate of occupancy is delivered (Building B) and to "Second Increment" shall mean the second building for which a certificate of occupancy is delivered (Building A), except for clause (iii) of Section 3.1(a) which shall read "the Substantial Completion Date for Building B." Except as amended by the foregoing clause, Section 3.1 of the Lease shall be unchanged. 2. Landlord and Tenant hereby agree that the Rent Commencement Date for the Premises shall be December 16, 2001. Notwithstanding anything contained in the Lease to the contrary, Base Rent for the months of December 2001, January 2002 and February 2002 shall be payable by Tenant to Landlord as follows; (a) First Increment (Building B). For the month of December 2001, Tenant shall pay Landlord fifty percent (50%) of the full month's rent on Building B as if the Rent Commencement Date for Building B occurred on December 1, 2001. Landlord anticipates receiving a Certificate of Occupancy (hereinafter defined) for all spaces within Building B with the exception of the cafeteria space located on the (1st) floor of Building B on or before December 20, 2001. Landlord anticipates receiving a Certificate of Occupancy on the cafeteria space located on the first (1st) floor of Building B on or before January 2, 2002. Subject to the rent credits set forth in subparagraph (c) below, Tenant shall pay Landlord full monthly rent in accordance with the Lease on Building B for the months of January 2002 and February 2002. (b) Second Increment (Building A). For the month of December 2001, Tenant shall pay Landlord twenty-five percent (25%) of the full month's rent on Building A as if the Rent Commencement Date for Building A occurred on December 1, 2001. Commencing on January 1, 2002, and continuing through and including January 13, 2002, Tenant shall pay to Landlord an amount of Base Rent equal to twenty-five percent (25%) of thirteen (13) days of Per Diem Base Rent (hereinafter defined) for the month of January 2002. Commencing on January 14, 2002, and continuing through and including January 31, 2002, Tenant shall pay to Landlord one hundred percent (100%) of eighteen (18) days of Per Diem Base Rent for Building A. Subject to the rent credits set forth in subparagraph (c) below, Tenant shall pay Landlord full monthly rent in accordance with the Lease on Building A for the month of February 2002. As used herein, the term "Per Diem Base Rent" shall mean the total rent that would be due and payable by Tenant to Landlord under the Lease for the applicable month as if the Rent Commencement Date occurred on the first day of such month, divided by the number of days in the applicable month. Landlord anticipates receiving a Certificate of Occupancy on all of the spaces in Building A except for the fourth (4th) floor of Building A on or before January 11, 2002. Landlord anticipates receiving a Certificate of Occupancy on the fourth (4th) floor of Building A on or before January 26, 2002. As used in subparagraphs (a) and (b) hereof, the term "Certificate of Occupancy" shall mean a certificate of occupancy (whether temporary or final) from the City of Dublin, California, with respect to the applicable space. (c) Rent Credits. In the event Landlord does not obtain a Certificate of Occupancy with respect to any of the applicable spaces referred to in subparagraph (a) or (b) hereof on or before the respective delivery dates set forth above, Tenant shall receive a rent credit against Base Rent due through February 2002 on a floor-by-floor basis in an amount equal to two (2) days of Per Diem Base Rent for such applicable space for each day of delay in delivering the applicable space times a factor of seventy-five percent (75%). For example, in the event Landlord delivers a Certificate of Occupancy for the cafeteria space on the first (1st) floor of Building B on January 4, 2002, instead of on January 2, 2002, then Tenant shall be entitled to receive a rent credit against the Base Rent due and owing for Building B in the amount equal to seventy-five percent (75%) of four (4) days of Per Diem Base Rent for the first (1st) floor, being the floor on which the cafeteria space is located. All of such credits shall be taken by Tenant against the Base Rent due and payable through February, 2002. In the event there are rent credits attributable to February, 2002 and Tenant has not applied such credits to rents payable for the month of February, 2002, Landlord shall pay to Tenant a refund in the amount of such unapplied credits on or before March 1, 2002. In no event shall Tenant be entitled to any rent credits under this Amendment for the period of time after March 1, 2002. Tenant's remedies in the event the Substantial Completion Date for Building A is after February 28, 2002, shall include the provisions of Section 2.3(b) of the Lease providing for liquidated damages and its rights under the Continuing Guaranty of Lease and Reimbursement Agreement by Wilcox Development Services, Inc., Cawley Holdings Ltd. and Wilcox Development Services I, Ltd. in favor of Sybase effective January 28, 2000. Tenant shall not be required to pay any additional rent to Landlord in the event the spaces in the buildings for which a Certificate of Occupancy is anticipated to be delivered by the anticipated dates set forth in this Amendment are in fact delivered prior to the anticipated dates set forth in this Amendment. 3. Section 2.4 of the Lease is hereby amended and modified by revising the first sentence thereof to read in its entirety as follows: "Subject to extension as provided in Section 2.5 below, the "Expiration Date" shall be January 31, 2017, unless Landlord has not obtained a Certificate of Occupancy on all of the spaces in the Premises prior to January 31, 2002, in which case the Expiration Date shall be extended on a day for day basis for each day after January 31, 2001 until Landlord has received a Certificate of Occupancy on all spaces in the Premises. For example, in the event Landlord obtains a Certificate of Occupancy on all of the spaces in the Premises on February 9, 2002, then the Expiration Date shall be February 8, 2017. In no event shall the Expiration Date be later than February 28, 2017." 4. Landlord shall be responsible for notifying iStar Financial, Inc. of this Amendment and obtaining approvals that are required by iStar, if any. Landlord and Tenant acknowledge that a prior draft of this Amendment was executed by Landlord and Tenant and dated November 19, 2001 and was not approved by iStar (the "Prior Draft"). The Prior Draft of the Second Amendment to Corporate Headquarters Lease is null and void as if such document was not signed and delivered by Landlord and Tenant. Except as modified above, the Lease remains in full force and effect. IN WITNESS WHEREOF, Landlord and Tenant have caused this Amendment to be executed and delivered, each by its duly authorized representative, effective as of the date and year set forth above. LANDLORD: TENANT: WDS-DUBLIN, LLC, SYBASE, INC., a California limited liability company a Delaware corporation By: Wilcox Interest, Inc., By: /S/ PIETER VAN DER VORST a Texas corporation, -------------------------------- its Managing Member Name: Pieter Van der Vorst Title: Chief Financial Officer By: /S/ STEPHEN B. PLATT ------------------------------ Name: Stephen B. Platt Title: President EX-10.31 10 f79747ex10-31.txt EXHIBIT 10.31 EXHIBIT 10.31 EXHIBIT A FINANCIAL FUSION, INC. 2001 STOCK OPTION PLAN 1. Purposes of the Plan. The purposes of this Plan are: - to attract and retain the best available personnel for positions of substantial responsibility, - to provide additional incentive to Employees and Consultants, and - to promote the success of the Company's business. Options granted under the Plan will be Incentive Stock Options and Nonstatutory Stock Options, as determined by the Administrator at the time of grant. Stock Purchase Rights may also be granted under the Plan. 2. Definitions. As used herein, the following definitions shall apply: (a) "Administrator" means the Board or any of its Committees as shall be administering the Plan, in accordance with Section 4 of the Plan. (b) "Applicable Laws" means the requirements relating to the administration of stock option and restricted stock plans under U.S. state corporate laws, U.S. federal and state securities laws, the Code, any stock exchange or quotation system on which the Common Stock is listed or quoted, and the applicable laws of any foreign jurisdiction where Options or Stock Purchase Rights are, or will be, granted under the Plan. (c) "Board" means the Board of Directors of the Company. (d) "Code" means the Internal Revenue Code of 1986, as amended. (e) "Committee" means a Committee appointed by the Board in accordance with Section 4 of the Plan. (f) "Common Stock" means the Common Stock of the Company. (g) "Company" means Financial Fusion, Inc. (h) "Consultant" means any person, including an advisor or Director, engaged by the Company, its Parent or a Subsidiary of the Company to render services to such entity. -1- (i) "Continuous Status as an Employee or Consultant" means that the employment or consulting relationship with the Company, its Parent or a Subsidiary of the Company, is not interrupted or terminated. Continuous Status as an Employee or Consultant shall not be considered interrupted in the case of (i) any leave of absence approved by the Company or (ii) transfers between locations of the Company or between the Company and a Subsidiary of the Company, or any successor. However, Continuous Status as an Employee or Consultant shall be considered terminated in the event an Employee or Consultant's employment or consulting relationship transfers from the Company (or a subsidiary) to the Company's Parent. A leave of absence approved by the Company shall include sick leave, military leave, or any other personal leave approved by an authorized representative of the Company. For purposes of Incentive Stock Options, no such leave may exceed ninety (90) days, unless reemployment upon expiration of such leave is guaranteed by statute or contract. If reemployment upon expiration of a leave of absence approved by the Company is not so guaranteed, on the one hundred eighty-first (181st) day of such leave any Incentive Stock Option held by the Optionee shall cease to be treated as an Incentive Stock Option and shall be treated for tax purposes as a Nonstatutory Stock Option. (j) "Director" means a member of the Board. (k) "Disability" means total and permanent disability as defined in Section 22(e)(3) of the Code. (1) "Employee" means any person (including officers and Directors) who, on the date he or she is granted an Option or Stock Purchase Right under this Plan is employed by the Company, its Parent or a Subsidiary of the Company. (m) "Exchange Act" means the Securities Exchange Act of 1934, as amended. (n) "Exercise Price" means the price paid for Shares issued upon exercise of an Option or Right. (o) "Fair Market Value" means, as of any date, the value of Common Stock determined as follows: (i) If the Common Stock is listed on any established stock exchange or a national market system, including without limitation the Nasdaq National Market or The Nasdaq SmallCap Market of The Nasdaq Stock Market, its Fair Market Value shall be the closing sales price for such stock (or the closing bid, if no sales were reported) as quoted on such exchange or system on the date of determination, as reported in The Wall Street Journal or such other source as the Administrator deems reliable; (ii) If the Common Stock is regularly quoted by a recognized securities dealer but selling prices are not reported, its Fair Market Value shall be the mean between the high bid and low asked prices for the Common Stock on the date of determination; or -2- (iii) In the absence of an established market for the Common Stock, the Fair Market Value thereof shall be determined in good faith by the Administrator. (p) "Incentive Stock Option" means an Option intended to qualify as an incentive stock option within the meaning of Section 422 of the Code and the regulations promulgated thereunder. (q) "Misconduct" means the Optionee is terminated for cause, as defined in the Company's Human Resources Policies and Procedures Manual, as the same may be amended from time to time. (r) "Nonstatutory Stock Option" means an Option not intended to qualify as an incentive stock option within the meaning of Section 422 of the Code and the regulations promulgated thereunder. (s) "Notice of Grant" means a written or electronic notice evidencing certain terms and conditions of an individual Option or Right grant. The Notice of Grant is part of the Option Agreement. (t) "Option" means a stock option granted pursuant to the Plan. (u) "Option Agreement" means an agreement between the Company and an Optionee evidencing the terms and conditions of an individual Option grant. The Option Agreement is subject to the terms and conditions of the Plan. (v) "Optionee" means an Employee or Consultant who is granted an Option under the Plan. (w) "Parent" means a "parent corporation", whether now or hereafter existing, as defined in Section 424(e) of the Code. (x) "Plan" means this 2001 Financial Fusion, Inc. Stock Option Plan. (y) "Purchaser" means a person who exercises a Stock Purchase Right. (z) "Restricted Stock" means Common Stock acquired pursuant to a Restricted Stock Purchase Agreement, as provided in Section 11 below. (aa) "Restricted Stock Purchase Agreement" means a written agreement between the Company and the Optionee setting forth the terms and restrictions applying to Restricted Stock purchased pursuant to a Stock Purchase Right. The Restricted Stock Purchase Agreement is subject to the terms and conditions of the Plan and the relevant Notice of Grant. (bb) "Right" means a Stock Purchase Right. -3- (cc) "Share" means a share of Common Stock, as adjusted in accordance with Section 14 of the Plan. (dd) "Stock Purchase Right" means the right to purchase Restricted Stock pursuant to Section 11 of the Plan. (ee) "Subsidiary" means a "subsidiary corporation", whether now or hereafter existing, as defined in Section 424(f) of the Code. 3. Shares Subject to the Plan. Subject to the provisions of Section 13 of the Plan, the maximum aggregate number of Shares that may be optioned and sold under the Plan is 2,000,000. The Shares may be authorized and unissued, or reacquired Common Stock. If an Option expires or becomes unexercisable without having been exercised in full, the unpurchased Shares that were subject thereto shall become available for future grant or sale under the Plan (unless the Plan has terminated). If Restricted Stock is repurchased by the Company at the original purchase price, and the original purchaser of such Restricted Stock did not receive any benefits of ownership of such Shares, such Shares shall become available for future grant under the Plan. For purposes of the proceeding sentence, voting rights shall not be considered a benefit of Share ownership. 4. Administration of the Plan. (a) Administration. The Plan shall be administered by (A) the Board, or (B) a Committee constituted in accordance with the Company's bylaws and Applicable Laws. (b) Powers of the Administrator. Subject to the provisions of the Plan, and in the case of a Committee, subject to the specific duties delegated by the Board to such Committee, the Administrator shall have the authority, in its discretion: (i) to determine the Fair Market Value of the Common Stock; (ii) to select the Consultants and Employees to whom Options and Rights may be granted hereunder; (iii) to determine whether and to what extent Options and Rights are granted hereunder; (iv) to determine the number of Shares to be covered by each Option and Right granted hereunder; (v) to approve forms of agreement for use under the Plan; (vi) to determine the terms and conditions, not inconsistent with the terms of the Plan, of any award granted hereunder. Such terms and conditions include, but are not -4- limited to, the Exercise Price, the time or conditions upon Options or Rights may be exercised (including, but not exclusively, the achievement of performance-based criteria), any vesting acceleration or waiver of forfeiture restrictions, and any restriction or limitation regarding any Option or Right or the Shares relating thereto, based in each case on such factors as the Administrator, in its sole discretion, shall determine; (vii) to construe and interpret the terms of the Plan and awards granted pursuant to the Plan; (viii) to prescribe, amend and rescind rules and regulations relating to the Plan, including rules and regulations relating to sub-plans established for the purpose of qualifying for preferred tax treatment under foreign tax laws; (ix) to modify or amend each Option or Right (subject to Section 16(b) of the Plan), including the discretionary authority to extend the post-termination exercisability period of Options; (x) to authorize any person to execute on behalf of the Company any instrument required to effect the grant of an Option or Right previously granted by the Administrator; (xi) to determine the terms and restrictions applicable to Options and Rights and any Restricted Stock; (xii) to determine whether and under what circumstances an Option may be settled in cash under Section 10(e) instead of Common Stock; (xiii) to determine whether, to what extent and under what circumstances Shares issued pursuant to the exercise of Options or Rights under this Plan shall be deferred either automatically or at the election of the participant (including providing for and determining the amount (if any) of any deemed earnings on any deferred amount during any deferral period); and (xiv) to make all other determinations deemed necessary or advisable for administering the Plan. (b) Effect of Administrator's Decision. The Administrator's decisions, determinations and interpretations shall be final and binding on all Optionees and any other holders of Options or Rights. 5. Eligibility. Nonstatutory Stock Options and Rights may be granted to Employees and Consultants. Incentive Stock Options may be granted only to Employees. If otherwise eligible, an Employee or Consultant who has been granted an Option or Right may be granted additional Options or Rights. -5- 6. Limitations. (a) Each Option shall be designated in the Option Agreement as either an Incentive Stock Option or a Nonstatutory Stock Option. However, notwithstanding such designation, to the extent that the aggregate Fair Market Value of the Shares with respect to which Incentive Stock Options are exercisable for the first time by the Optionee during any calendar year (under all plans of the Company and any Parent or Subsidiary) exceeds $100,000, such Options shall be treated as Nonstatutory Stock Options. For purposes of this Section 6(a), Incentive Stock Options shall be taken into account in the order in which they were granted. The Fair Market Value of the Shares shall be determined as of the time the Option with respect to such Shares is granted. (b) Neither the Plan nor any Option shall confer upon an Optionee any right with respect to continuing the Optionee's employment or consulting relationship with the Company, nor shall they interfere in any way with the Optionee's right or the Company's right to terminate such employment or consulting relationship at any time, with or without cause. 7. Term of Plan. Subject to Section 20 of the Plan, the Plan shall become effective upon the earlier to occur of its adoption by the Board or its approval by the stockholders of the Company as described in Section 20 of the Plan. It shall continue in effect for a term of ten (10) years unless terminated earlier under Section 16 of the Plan. 8. Term of Option. The term of each Option shall be stated in the Notice of Grant, and shall be ten (10) years from the date of grant or such shorter term as may be provided in the Notice of Grant. 9. Option Exercise Price and Consideration. (a) The Exercise Price shall be such price as is determined by the Administrator, but shall be subject to the following: (i) In the case of an Incentive Stock Option a) granted to an Employee who, at the time of grant of such Option, owns stock representing more than ten percent (10%) of the voting power of all classes of stock of the Company or any Parent or Subsidiary, the exercise price shall be no less than 110% of the Fair Market Value per Share on the date of grant. b) granted to any other Employee, the Exercise Price shall be no less than 100% of the Fair Market Value per Share on the date of grant. (ii) In the case of a Nonstatutory Stock Option a) granted to an Employee or Consultant who, at the time of grant of such Option, owns stock representing more than ten percent (10%) of the voting power -6- of all classes of stock of the Company or any Parent or Subsidiary, the Exercise Price shall be no less than 110% of the Fair Market Value per Share on the date of grant. b) granted to any other Employee or Consultant, the Exercise Price shall be no less than 85% of the Fair Market Value per Share on the date of grant; provided, however, that for any calendar year, the aggregate number of Shares subject to Nonstatutory Stock Options granted during such calendar year with an Exercise Price less than the Fair Market Value per Share on the date of grant shall not exceed five percent (5%) of the number of Shares subject to Options granted in the preceding calendar year. (b) Waiting Period and Exercise Dates. Subject to the provisions of Section 10(a), at the time an Option is granted, the Administrator shall fix the period within which the Option may be exercised and shall determine any conditions which must be satisfied before the Option may be exercised. In so doing, the Administrator may specify that an Option may not be exercised until the completion of a service period or the attainment of certain performance goals determined by the Administrator, again subject to the provisions of Section 10(a). (c) Form of Consideration. The Administrator shall determine the acceptable form of consideration for exercising an Option, including the method of payment. Such consideration may consist entirely of: (i) cash; (ii) check; (iii) other Shares which (A) in the case of Shares acquired upon exercise of an option, have been owned by the Optionee for more than six (6) months on the date of surrender, and (B) have a Fair Market Value on the date of surrender equal to at least the aggregate Exercise Price of the Shares; (iv) delivery of a properly executed exercise notice together with such other documentation as the Administrator and the broker, if applicable, shall require to effect an exercise of the Option and delivery to the Company of the sale or loan proceeds required to pay the Exercise Price; (v) a reduction in the amount of any Company liability to the Optionee, including any liability attributable to the Optionee's participation in any Company-sponsored deferred compensation program or arrangement; (vi) any combination of the foregoing methods of payment; or (vii) such other consideration and method of payment for the issuance of Shares to the extent permitted by Applicable Laws. -7- 10. Exercise of Option. (a) Procedure for Exercise; Rights as a Shareholder. Any Option granted hereunder shall be exercisable according to the terms of the Plan and at such times and under such conditions as determined by the Administrator and set forth in the Option Agreement. Except in the case of Options granted to officers, Directors and Consultants, Options shall become exercisable at the rate of no less than 20% per year over five (5) years from the date Options are granted. Unless the Administrator provides otherwise, vesting of Options granted hereunder to officers and Directors shall be tolled during any unpaid leave of absence. An Option may not be exercised for a fraction of a Share. An Option shall be deemed exercised when the Company receives: (i) written or electronic notice of exercise (in accordance with the Option Agreement) from the person entitled to exercise the Option, and (ii) full payment of the Exercise Price for the underlying Shares. Full payment may consist of any consideration and method of payment authorized by the Administrator and permitted by the Option Agreement and the Plan. Shares issued upon exercise of an Option shall be issued in the name of the Optionee or, if requested by the Optionee, in the name of the Optionee and his or her spouse. Until the stock certificate evidencing such Shares is issued (as evidenced by the appropriate entry on the books of the Company or of a duly authorized transfer agent of the Company), no right to vote or receive dividends or to exercise any other rights as a shareholder shall exist with respect to the Shares, notwithstanding the exercise of the Option. The Company shall issue (or cause to be issued) such stock certificate promptly after the Option is exercised. No adjustment will be made for a dividend or other right declared prior to the date the Shares are issued, except as provided in Section 14 of the Plan. Exercising an Option in any manner shall decrease the number of Shares thereafter available, both for purposes of the Plan and for sale under the Option, by the number of Shares as to which the Option is exercised. (b) Termination of Employment or Consulting Relationship. Upon termination of an Optionee's Continuous Status as an Employee or Consultant, other than as provided for in Sections 10(c) and 10(d), the Optionee may exercise his or her Option, but only within such period of time as is specified in the Notice of Grant, and only to the extent that the Optionee was entitled to exercise it at the date of termination (but in no event later than the expiration of the term of such Option as set forth in the Notice of Grant). In the absence of a specified time in the Notice of Grant, the Option shall remain exercisable for three (3) months following the Optionee's termination. If, on the date of termination, the Optionee is not entitled to exercise the Optionee's entire Option, the Shares covered by the unexercisable portion of the Option shall revert to the Plan. If, after termination, the Optionee does not exercise his or her Option within the time specified by the Administrator, the Option shall terminate, and the Shares covered by such Option shall revert to the Plan. (i) Notwithstanding the above, in the event an Optionee's Continuous Status as an Employee or Consultant terminates due to an act of Misconduct by the Optionee, all -8- unexercised Options held by such Optionee shall expire five (5) business days following written notice from the Company to the Optionee. (ii) Notwithstanding the above, in the event of an Optionee's change in status from Consultant to Employee or Employee to Consultant, an Optionee's Continuous Status as an Employee or Consultant shall not automatically terminate solely as a result of such change in status. However, in the event of an Optionee's change of status from Employee to Consultant, an Incentive Stock Option held by the Optionee shall cease to be treated as an Incentive Stock Option and shall be treated for tax purposes as a Nonstatutory Stock Option three (3) months and one (1) day following such change of status. (c) Disability of Optionee. In the event that an Optionee's Continuous Status as an Employee or Consultant terminates as a result of the Optionee's Disability, the Optionee may exercise his or her Option at any time within twelve (12) months from the date of such termination, but only to the extent that the Optionee was entitled to exercise it at the date of such termination (but in no event later than the expiration of the term of such Option as set forth in the Notice of Grant). If, at the date of termination, the Optionee is not entitled to exercise his or her entire Option, the Shares covered by the unexercisable portion of the Option shall revert to the Plan. If, after termination, the Optionee does not exercise his or her Option within the time specified herein, the Option shall terminate, and the Shares covered by such Option shall revert to the Plan. (d) Death of Optionee. In the event of the death of an Optionee, the Option may be exercised at any time within twenty-four (24) months following the date of death (but in no event later than the expiration of the term of such Option as set forth in the Notice of Grant), by the Optionee's estate or by a person who acquired the right to exercise the Option by bequest or inheritance, but only to the extent that the Optionee was entitled to exercise the Option at the date of death. If, at the time of death, the Optionee was not entitled to exercise his or her entire Option, the Shares covered by the unexercisable portion of the Option shall immediately revert to the Plan. If, after death, the Optionee's estate or a person who acquired the right to exercise the Option by bequest or inheritance does not exercise the Option within the time specified herein, the Option shall terminate, and the Shares covered by such Option shall revert to the Plan. (e) Buyout Provisions. The Administrator may at any time offer to buy out for a payment in cash or Shares, an Option previously granted based on such terms and conditions as the Administrator shall establish and communicate to the Optionee at the time that such offer is made. 11. Stock Purchase Rights. (a) Rights to Purchase Restricted Stock. Stock Purchase Rights under the Plan may be issued either alone, in addition to, or in tandem with other awards granted under the Plan and/or cash awards made outside of the Plan. After the Administrator determines that it will offer Stock Purchase Rights under the Plan, it shall advise the offeree in writing or electronically, by means of a Notice of Grant, of the terms, conditions and restrictions related to the offer, -9- including (i) the number of Shares of Restricted Stock that the offeree shall be entitled to purchase, (ii) the price to be paid, (iii) the rate at which Restricted Stock will vest, and (iv) the time within which the offeree must accept such offer, which shall in no event exceed six (6) months from the date of such Stock Purchase Rights are granted. The offer shall be accepted by execution of a Restricted Stock Purchase Agreement in the form determined by the Administrator. The Administrator may grant a Stock Purchase Right at a price equal to or in excess of the par value of the Shares; provided, that for any calendar year, the aggregate number of Shares subject to grants of Stock Purchase Rights granted during such calendar year with an Exercise Price less than the Fair Market Value per Share on the date of grant shall not exceed ten percent (10%) of the number of Shares subject to Options granted under the Plan in the preceding calendar year. (b) Company Repurchase Option. If a Purchaser's employment is terminated for any reason (including the death or Disability), the Restricted Stock Purchase Agreement may grant the Company the right to repurchase Restricted Stock issued to Purchaser (whether or not vested) on terms and conditions established by the Administrator it its sole discretion. The purchase price for such Shares shall be the original price paid by the Purchaser, and may be paid by cancellation of any indebtedness owing to the Company by Purchaser, or any other means approved by the Administrator. The Company's repurchase option shall lapse at a rate determined by the Administrator. (c) Other Provisions. The Restricted Stock Purchase Agreement shall contain such other terms, provisions and conditions not inconsistent with the Plan as may be determined by the Administrator in its sole discretion. In addition, the provisions of each Restricted Stock Purchase Agreement need not be the same with respect to each purchaser. (d) Rights as a Shareholder. Once a Stock Purchase Right is exercised, the purchaser shall have the rights equivalent to those of a shareholder, and shall be a shareholder when his or her purchase is entered upon the records of the duly authorized transfer agent of the Company. No adjustment will be made for dividends or other rights which are declared prior to the date a Stock Purchase Right is exercised, except as provided in Section 14 of the Plan. 12. Withholding Taxes. In accordance with any applicable administrative guidelines it establishes, the Administrator may allow a purchaser to pay the minimum amount of taxes required by law to be withheld (but no greater amount) as a result of a purchase of Shares or a lapse of restrictions in connection with Shares purchased pursuant to an Option or Right, by withholding from any payment of Common Stock due as a result of such purchase or lapse of restrictions, or by permitting the purchaser to deliver to the Company, Shares having a Fair Market Value, as determined by the Administrator, equal to the amount of such required withholding taxes. 13. Non-Transferability of Options and Rights. Unless otherwise specified by the Administrator in the Notice of Grant, no Option or Right may be sold, pledged, assigned, hypothecated, transferred, or disposed of in any manner other than by will or by the laws of descent or distribution and may be exercised, during the lifetime of the Optionee, only by the -10- Optionee. If the Administrator makes an Option or Right transferable, such Option or Right shall contain such additional terms and conditions as the Administrator deems appropriate. 14. Adjustments Upon Changes in Capitalization, Dissolution, Merger or Asset Sale. (a) Changes in Capitalization. Subject to any required action by the stockholders of the Company, the number of shares of Common Stock covered by each outstanding Option and Right, and the number of shares of Common Stock which have been authorized for issuance under the Plan but as to which no Options or Rights have yet been granted or which have been returned to the Plan upon cancellation or expiration of an Option or Right, as well as the price per share of Common Stock covered by each such outstanding Option or Right, shall be proportionately adjusted for any increase or decrease in the number of issued shares of Common Stock resulting from a stock split, reverse stock split, stock dividend, combination or reclassification of the Common Stock, or any other increase or decrease in the number of issued shares of Common Stock effected without receipt of consideration by the Company; provided, however, that conversion of any convertible securities of the Company shall not be deemed to have been "effected without receipt of consideration. Such adjustment shall be made by the Board, whose determination in that respect shall be final, binding and conclusive. Except as expressly provided herein, no issuance by the Company of shares of stock of any class, or securities convertible into shares of stock of any class, shall affect, and no adjustment by reason thereof shall be made with respect to, the number or price of shares of Common Stock subject to an Option or Right. (b) Dissolution or Liquidation. In the event of the proposed dissolution or liquidation of the Company, the Administrator shall notify each Optionee or holder of a Stock Purchase Right as soon as practicable prior to the effective date of such proposed transaction. The Administrator in its discretion may provide for such individuals to have the right to exercise his or her Options or Rights until ten (10) days prior to such transaction as to all of the Shares covered thereby, including Shares as to which the Option or Right would not otherwise be exercisable. In addition, the Administrator may provide that any Company repurchase rights applicable to any Shares purchased upon exercise of an Option or Right shall lapse as to all such Shares, provided the proposed dissolution or liquidation takes place at the time and in the manner contemplated. To the extent not been previously exercised, an Option or Right will terminate immediately prior to the consummation of such proposed action. (c) Merger or Asset Sale. In the event of a merger of the Company with or into another corporation, or the sale of substantially all of the assets of the Company, each outstanding Option or Right shall be assumed or an equivalent option or right substituted by the successor corporation or a Parent or Subsidiary of the successor corporation (the "Successor Corporation"), unless the Successor Corporation refuses to assume or substitute for the Option or Right, in which case the Optionee shall have the right to exercise the Option or Right as to all of the Shares subject thereto, including Shares as to which it would not otherwise be exercisable. If an Option or Right is exercisable in lieu of assumption or substitution in the event of a merger or sale of assets, the Administrator shall notify the Optionee in writing or electronically that the Option or Right shall be fully exercisable for a period of not less than fifteen (15) days from the -11- date of such notice, and the Option or Right shall terminate upon the expiration of such period. For the purposes of this paragraph, the Option or Right shall be considered assumed if, following the merger or sale of assets, the Option or Right confers the right to purchase or receive, for each Share subject to the Option or Right immediately prior to the merger or sale of assets, the consideration (whether stock, cash, or other securities or property) received in the merger or sale of assets by holders of Common Stock for each Share held on the effective date of the transaction (and if holders were offered a choice of consideration, the type of consideration chosen by the holders of a majority of the outstanding Shares); provided, however, that if such consideration received in the merger or sale of assets was not solely common stock of the Successor Corporation, the Administrator may, with the consent of the Successor Corporation, provide for the consideration to be received upon the exercise of the Option or Right, for each Share subject to the Option or Right, to be solely common stock of the Successor Corporation equal in fair market value to the per share consideration received by holders of Common Stock in the merger or sale of assets. 15. Date of Grant. The date of grant of an Option or Right shall be, for all purposes, the date on which the Administrator makes the determination granting such Option or Right, or such other later date as is determined by the Administrator. Notice of the determination shall be provided to each recipient of an Option or Right within a reasonable time after the date of such grant. 16. Amendment and Termination of the Plan. (a) Amendment and Termination. The Board may at any time amend, alter, suspend or terminate the Plan. (b) Effect of Amendment or Termination. No amendment, alteration, suspension or termination of the Plan shall impair the rights of any Optionee or holder of a Stock Purchase Right, unless mutually agreed otherwise between such person and the Administrator, which agreement must be in writing and signed by such person and on behalf of the Company. Termination of the Plan shall not affect the Administrator's ability to exercise the powers granted to it hereunder with respect to options and rights granted under the Plan prior to the date of such termination. 17. Conditions Upon Issuance of Shares. (a) Legal Compliance. Shares shall not be issued pursuant to the exercise of an Option or Right unless the exercise of such Option or Right and the issuance and delivery of the underlying Shares shall comply with Applicable Laws, and shall be further subject to the approval of counsel for the Company with respect to such compliance. (b) Investment Representations. As a condition to the exercise of an Option or Right, the Company may require the person exercising such Option or Right to represent and warrant at the time of any such exercise that the Shares are being purchased only for investment -12- and without any present intention to sell or distribute such Shares if, in the opinion of counsel for the Company, such a representation is required. 18. Liability of Company. (a) The inability of the Company to obtain authority from any regulatory body having jurisdiction, which authority is deemed by the Company's counsel to be necessary to the lawful issuance and sale of any Shares hereunder, shall relieve the Company of any liability in respect of the failure to issue or sell such Shares as to which such requisite authority shall not have been obtained. (b) If the Shares covered by an Option or Right exceeds, as of the date of grant, the number of Shares which may be issued under the Plan without additional shareholder approval, such Option or Right shall be void with respect to such excess Shares, unless shareholder approval of an amendment sufficiently increasing the number of Shares subject to the Plan is timely obtained in accordance with Section 20 of the Plan. 19. Reservation of Shares. The Company, during the term of this Plan, will at all times reserve and keep available such number of Shares as shall be sufficient to satisfy the requirements of the Plan. 20. Shareholder Approval. Continuation of the Plan shall be subject to approval by the stockholders of the Company within twelve (12) months before or after the date the Plan is adopted. Such shareholder approval shall be obtained in the manner and to the degree required under Applicable Laws. 21. Information to Optionees and Purchasers. The Company shall provide to each Optionee and Purchaser who acquires Shares pursuant to the Plan, not less frequently than annually during the period Options, Stock Purchase Rights or Restricted Stock held by such individuals, copies of annual financial statements. The Company shall not be required to provide such statements to key employees whose job duties assure their access to equivalent information. -13- EX-10.32 11 f79747ex10-32.txt EXHIBIT 10.32 EXHIBIT 10.32 iANYWHERE SOLUTIONS, INC. 2001 STOCK OPTION PLAN 1. Purposes of the Plan. The purposes of this Plan are: - to attract and retain the best available personnel for positions of substantial responsibility, - to provide additional incentive to Employees and Consultants, and - to promote the success of the Company's business. Options granted under the Plan will be Incentive Stock Options and Nonstatutory Stock Options, as determined by the Administrator at the time of grant. Stock Purchase Rights may also be granted under the Plan. 2. Definitions. As used herein, the following definitions shall apply: (a) "Administrator" means the Board or any of its Committees as shall be administering the Plan, in accordance with Section 4 of the Plan. (b) "Applicable Laws" means the requirements relating to the administration of stock option and restricted stock plans under U.S. state corporate laws, U.S. federal and state securities laws, the Code, any stock exchange or quotation system on which the Common Stock is listed or quoted, and the applicable laws of any foreign jurisdiction where Options or Stock Purchase Rights are, or will be, granted under the Plan. (c) "Board" means the Board of Directors of the Company. (d) "Code" means the Internal Revenue Code of 1986, as amended. (e) "Committee" means a Committee appointed by the Board in accordance with Section 4 of the Plan. (f) "Common Stock" means the Common Stock of the Company. (g) "Company" means iAnywhere Solutions, Inc. (h) "Consultant" means any person, including an advisor or Director, engaged by the Company, its Parent or a Subsidiary of the Company to render services to such entity. -1- (i) "Continuous Status as an Employee or Consultant" means that the employment or consulting relationship with the Company, its Parent or a Subsidiary of the Company, is not interrupted or terminated. Continuous Status as an Employee or Consultant shall not be considered interrupted in the case of (i) any leave of absence approved by the Company or (ii) transfers between locations of the Company or between the Company and a Subsidiary of the Company, or any successor. However, Continuous Status as an Employee or Consultant shall be considered terminated in the event an Employee or Consultant's employment or consulting relationship transfers from the Company (or a subsidiary) to the Company's Parent. A leave of absence approved by the Company shall include sick leave, military leave, or any other personal leave approved by an authorized representative of the Company. For purposes of Incentive Stock Options, no such leave may exceed ninety (90) days, unless reemployment upon expiration of such leave is guaranteed by statute or contract. If reemployment upon expiration of a leave of absence approved by the Company is not so guaranteed, on the one hundred eighty-first (181st) day of such leave any Incentive Stock Option held by the Optionee shall cease to be treated as an Incentive Stock Option and shall be treated for tax purposes as a Nonstatutory Stock Option. (j) "Director" means a member of the Board. (k) "Disability" means total and permanent disability as defined in Section 22(e)(3) of the Code. (1) "Employee" means any person (including officers and Directors) who, on the date he or she is granted an Option or Stock Purchase Right under this Plan is employed by the Company, its Parent or a Subsidiary of the Company. (m) "Exchange Act" means the Securities Exchange Act of 1934, as amended. (n) "Exercise Price" means the price paid for Shares issued upon exercise of an Option or Right. (o) "Fair Market Value" means, as of any date, the value of Common Stock determined as follows: (i) If the Common Stock is listed on any established stock exchange or a national market system, including without limitation the Nasdaq National Market or The Nasdaq SmallCap Market of The Nasdaq Stock Market, its Fair Market Value shall be the closing sales price for such stock (or the closing bid, if no sales were reported) as quoted on such exchange or system on the date of determination, as reported in The Wall Street Journal or such other source as the Administrator deems reliable; (ii) If the Common Stock is regularly quoted by a recognized securities dealer but selling prices are not reported, its Fair Market Value shall be the mean between the high bid and low asked prices for the Common Stock on the date of determination; or -2- (iii) In the absence of an established market for the Common Stock, the Fair Market Value thereof shall be determined in good faith by the Administrator. (p) "Incentive Stock Option" means an Option intended to qualify as an incentive stock option within the meaning of Section 422 of the Code and the regulations promulgated thereunder. (q) "Misconduct" means the Optionee is terminated for cause, as defined in the Company's Human Resources Policies and Procedures Manual, as the same may be amended from time to time. (r) "Nonstatutory Stock Option" means an Option not intended to qualify as an incentive stock option within the meaning of Section 422 of the Code and the regulations promulgated thereunder. (s) "Notice of Grant" means a written or electronic notice evidencing certain terms and conditions of an individual Option or Right grant. The Notice of Grant is part of the Option Agreement. (t) "Option" means a stock option granted pursuant to the Plan. (u) "Option Agreement" means an agreement between the Company and an Optionee evidencing the terms and conditions of an individual Option grant. The Option Agreement is subject to the terms and conditions of the Plan. (v) "Optionee" means an Employee or Consultant who is granted an Option under the Plan. (w) "Parent" means a "parent corporation", whether now or hereafter existing, as defined in Section 424(e) of the Code. (x) "Plan" means this 2001 iAnywhere Solutions, Inc. Stock Option Plan. (y) "Purchaser" means a person who exercises a Stock Purchase Right. (z) "Restricted Stock" means Common Stock acquired pursuant to a Restricted Stock Purchase Agreement, as provided in Section 11 below. (aa) "Restricted Stock Purchase Agreement" means a written agreement between the Company and the Optionee setting forth the terms and restrictions applying to Restricted Stock purchased pursuant to a Stock Purchase Right. The Restricted Stock Purchase Agreement is subject to the terms and conditions of the Plan and the relevant Notice of Grant. (bb) "Right" means a Stock Purchase Right. -3- (cc) "Share" means a share of Common Stock, as adjusted in accordance with Section 14 of the Plan. (dd) "Stock Purchase Right" means the right to purchase Restricted Stock pursuant to Section 11 of the Plan. (ee) "Subsidiary" means a "subsidiary corporation", whether now or hereafter existing, as defined in Section 424(f) of the Code. 3. Shares Subject to the Plan. Subject to the provisions of Section 13 of the Plan, the maximum aggregate number of Shares that may be optioned and sold under the Plan is 11,250,000. The Shares may be authorized and unissued, or reacquired Common Stock. If an Option expires or becomes unexercisable without having been exercised in full, the unpurchased Shares that were subject thereto shall become available for future grant or sale under the Plan (unless the Plan has terminated). If Restricted Stock is repurchased by the Company at the original purchase price, and the original purchaser of such Restricted Stock did not receive any benefits of ownership of such Shares, such Shares shall become available for future grant under the Plan. For purposes of the proceeding sentence, voting rights shall not be considered a benefit of Share ownership. 4. Administration of the Plan. (a) Administration. The Plan shall be administered by (A) the Board, or (B) a Committee constituted in accordance with the Company's bylaws and Applicable Laws. (b) Powers of the Administrator. Subject to the provisions of the Plan, and in the case of a Committee, subject to the specific duties delegated by the Board to such Committee, the Administrator shall have the authority, in its discretion: (i) to determine the Fair Market Value of the Common Stock; (ii) to select the Consultants and Employees to whom Options and Rights may be granted hereunder; (iii) to determine whether and to what extent Options and Rights are granted hereunder; (iv) to determine the number of Shares to be covered by each Option and Right granted hereunder; (v) to approve forms of agreement for use under the Plan; (vi) to determine the terms and conditions, not inconsistent with the terms of the Plan, of any award granted hereunder. Such terms and conditions include, but are not limited to, the Exercise Price, the time or conditions upon Options or Rights may be exercised -4- (including, but not exclusively, the achievement of performance-based criteria), any vesting acceleration or waiver of forfeiture restrictions, and any restriction or limitation regarding any Option or Right or the Shares relating thereto, based in each case on such factors as the Administrator, in its sole discretion, shall determine; (vii) to construe and interpret the terms of the Plan and awards granted pursuant to the Plan; (viii) to prescribe, amend and rescind rules and regulations relating to the Plan, including rules and regulations relating to sub-plans established for the purpose of qualifying for preferred tax treatment under foreign tax laws; (ix) to modify or amend each Option or Right (subject to Section 16(b) of the Plan), including the discretionary authority to extend the post-termination exercisability period of Options; (x) to authorize any person to execute on behalf of the Company any instrument required to effect the grant of an Option or Right previously granted by the Administrator; (xi) to determine the terms and restrictions applicable to Options and Rights and any Restricted Stock; (xii) to determine whether and under what circumstances an Option may be settled in cash under Section 10(e) instead of Common Stock; (xiii) to determine whether, to what extent and under what circumstances Shares issued pursuant to the exercise of Options or Rights under this Plan shall be deferred either automatically or at the election of the participant (including providing for and determining the amount (if any) of any deemed earnings on any deferred amount during any deferral period); and (xiv) to make all other determinations deemed necessary or advisable for administering the Plan. (b) Effect of Administrator's Decision. The Administrator's decisions, determinations and interpretations shall be final and binding on all Optionees and any other holders of Options or Rights. 5. Eligibility. Nonstatutory Stock Options and Rights may be granted to Employees and Consultants. Incentive Stock Options may be granted only to Employees. If otherwise eligible, an Employee or Consultant who has been granted an Option or Right may be granted additional Options or Rights. 6. Limitations. -5- (a) Each Option shall be designated in the Option Agreement as either an Incentive Stock Option or a Nonstatutory Stock Option. However, notwithstanding such designation, to the extent that the aggregate Fair Market Value of the Shares with respect to which Incentive Stock Options are exercisable for the first time by the Optionee during any calendar year (under all plans of the Company and any Parent or Subsidiary) exceeds $100,000, such Options shall be treated as Nonstatutory Stock Options. For purposes of this Section 6(a), Incentive Stock Options shall be taken into account in the order in which they were granted. The Fair Market Value of the Shares shall be determined as of the time the Option with respect to such Shares is granted. (b) Neither the Plan nor any Option shall confer upon an Optionee any right with respect to continuing the Optionee's employment or consulting relationship with the Company, nor shall they interfere in any way with the Optionee's right or the Company's right to terminate such employment or consulting relationship at any time, with or without cause. 7. Term of Plan. Subject to Section 20 of the Plan, the Plan shall become effective upon the earlier to occur of its adoption by the Board or its approval by the stockholders of the Company as described in Section 20 of the Plan. It shall continue in effect for a term of ten (10) years unless terminated earlier under Section 16 of the Plan. 8. Term of Option. The term of each Option shall be stated in the Notice of Grant, and shall be ten (10) years from the date of grant or such shorter term as may be provided in the Notice of Grant. 9. Option Exercise Price and Consideration. (a) The Exercise Price shall be such price as is determined by the Administrator, but shall be subject to the following: (i) In the case of an Incentive Stock Option a) granted to an Employee who, at the time of grant of such Option, owns stock representing more than ten percent (10%) of the voting power of all classes of stock of the Company or any Parent or Subsidiary, the exercise price shall be no less than 110% of the Fair Market Value per Share on the date of grant. b) granted to any other Employee, the Exercise Price shall be no less than 100% of the Fair Market Value per Share on the date of grant. (ii) In the case of a Nonstatutory Stock Option a) granted to an Employee or Consultant who, at the time of grant of such Option, owns stock representing more than ten percent (10%) of the voting power -6- of all classes of stock of the Company or any Parent or Subsidiary, the Exercise Price shall be no less than 110% of the Fair Market Value per Share on the date of grant. b) granted to any other Employee or Consultant, the Exercise Price shall be no less than 85% of the Fair Market Value per Share on the date of grant; provided, however, that for any calendar year, the aggregate number of Shares subject to Nonstatutory Stock Options granted during such calendar year with an Exercise Price less than the Fair Market Value per Share on the date of grant shall not exceed five percent (5%) of the number of Shares subject to Options granted in the preceding calendar year. (b) Waiting Period and Exercise Dates. Subject to the provisions of Section 10(a), at the time an Option is granted, the Administrator shall fix the period within which the Option may be exercised and shall determine any conditions which must be satisfied before the Option may be exercised. In so doing, the Administrator may specify that an Option may not be exercised until the completion of a service period or the attainment of certain performance goals determined by the Administrator, again subject to the provisions of Section 10(a). (c) Form of Consideration. The Administrator shall determine the acceptable form of consideration for exercising an Option, including the method of payment. Such consideration may consist entirely of: (i) cash; (ii) check; (iii) other Shares which (A) in the case of Shares acquired upon exercise of an option, have been owned by the Optionee for more than six (6) months on the date of surrender, and (B) have a Fair Market Value on the date of surrender equal to at least the aggregate Exercise Price of the Shares; (iv) delivery of a properly executed exercise notice together with such other documentation as the Administrator and the broker, if applicable, shall require to effect an exercise of the Option and delivery to the Company of the sale or loan proceeds required to pay the Exercise Price; (v) a reduction in the amount of any Company liability to the Optionee, including any liability attributable to the Optionee's participation in any Company-sponsored deferred compensation program or arrangement; (vi) any combination of the foregoing methods of payment; or (vii) such other consideration and method of payment for the issuance of Shares to the extent permitted by Applicable Laws. 10. Exercise of Option. -7- (a) Procedure for Exercise; Rights as a Shareholder. Any Option granted hereunder shall be exercisable according to the terms of the Plan and at such times and under such conditions as determined by the Administrator and set forth in the Option Agreement. Except in the case of Options granted to officers, Directors and Consultants, Options shall become exercisable at the rate of no less than 20% per year over five (5) years from the date Options are granted. Unless the Administrator provides otherwise, vesting of Options granted hereunder to officers and Directors shall be tolled during any unpaid leave of absence. An Option may not be exercised for a fraction of a Share. An Option shall be deemed exercised when the Company receives: (i) written or electronic notice of exercise (in accordance with the Option Agreement) from the person entitled to exercise the Option, and (ii) full payment of the Exercise Price for the underlying Shares. Full payment may consist of any consideration and method of payment authorized by the Administrator and permitted by the Option Agreement and the Plan. Shares issued upon exercise of an Option shall be issued in the name of the Optionee or, if requested by the Optionee, in the name of the Optionee and his or her spouse. Until the stock certificate evidencing such Shares is issued (as evidenced by the appropriate entry on the books of the Company or of a duly authorized transfer agent of the Company), no right to vote or receive dividends or to exercise any other rights as a shareholder shall exist with respect to the Shares, notwithstanding the exercise of the Option. The Company shall issue (or cause to be issued) such stock certificate promptly after the Option is exercised. No adjustment will be made for a dividend or other right declared prior to the date the Shares are issued, except as provided in Section 14 of the Plan. Exercising an Option in any manner shall decrease the number of Shares thereafter available, both for purposes of the Plan and for sale under the Option, by the number of Shares as to which the Option is exercised. (b) Termination of Employment or Consulting Relationship. Upon termination of an Optionee's Continuous Status as an Employee or Consultant, other than as provided for in Sections 10(c) and 10(d), the Optionee may exercise his or her Option, but only within such period of time as is specified in the Notice of Grant, and only to the extent that the Optionee was entitled to exercise it at the date of termination (but in no event later than the expiration of the term of such Option as set forth in the Notice of Grant). In the absence of a specified time in the Notice of Grant, the Option shall remain exercisable for three (3) months following the Optionee's termination. If, on the date of termination, the Optionee is not entitled to exercise the Optionee's entire Option, the Shares covered by the unexercisable portion of the Option shall revert to the Plan. If, after termination, the Optionee does not exercise his or her Option within the time specified by the Administrator, the Option shall terminate, and the Shares covered by such Option shall revert to the Plan. (i) Notwithstanding the above, in the event an Optionee's Continuous Status as an Employee or Consultant terminates due to an act of Misconduct by the Optionee, all -8- unexercised Options held by such Optionee shall expire five (5) business days following written notice from the Company to the Optionee. (ii) Notwithstanding the above, in the event of an Optionee's change in status from Consultant to Employee or Employee to Consultant, an Optionee's Continuous Status as an Employee or Consultant shall not automatically terminate solely as a result of such change in status. However, in the event of an Optionee's change of status from Employee to Consultant, an Incentive Stock Option held by the Optionee shall cease to be treated as an Incentive Stock Option and shall be treated for tax purposes as a Nonstatutory Stock Option three (3) months and one (1) day following such change of status. (c) Disability of Optionee. In the event that an Optionee's Continuous Status as an Employee or Consultant terminates as a result of the Optionee's Disability, the Optionee may exercise his or her Option at any time within twelve (12) months from the date of such termination, but only to the extent that the Optionee was entitled to exercise it at the date of such termination (but in no event later than the expiration of the term of such Option as set forth in the Notice of Grant). If, at the date of termination, the Optionee is not entitled to exercise his or her entire Option, the Shares covered by the unexercisable portion of the Option shall revert to the Plan. If, after termination, the Optionee does not exercise his or her Option within the time specified herein, the Option shall terminate, and the Shares covered by such Option shall revert to the Plan. (d) Death of Optionee. In the event of the death of an Optionee, the Option may be exercised at any time within twenty-four (24) months following the date of death (but in no event later than the expiration of the term of such Option as set forth in the Notice of Grant), by the Optionee's estate or by a person who acquired the right to exercise the Option by bequest or inheritance, but only to the extent that the Optionee was entitled to exercise the Option at the date of death. If, at the time of death, the Optionee was not entitled to exercise his or her entire Option, the Shares covered by the unexercisable portion of the Option shall immediately revert to the Plan. If, after death, the Optionee's estate or a person who acquired the right to exercise the Option by bequest or inheritance does not exercise the Option within the time specified herein, the Option shall terminate, and the Shares covered by such Option shall revert to the Plan. (e) Buyout Provisions. The Administrator may at any time offer to buy out for a payment in cash or Shares, an Option previously granted based on such terms and conditions as the Administrator shall establish and communicate to the Optionee at the time that such offer is made. 11. Stock Purchase Rights. (a) Rights to Purchase Restricted Stock. Stock Purchase Rights under the Plan may be issued either alone, in addition to, or in tandem with other awards granted under the Plan and/or cash awards made outside of the Plan. After the Administrator determines that it will offer Stock Purchase Rights under the Plan, it shall advise the offeree in writing or electronically, by means of a Notice of Grant, of the terms, conditions and restrictions related to the offer, -9- including (i) the number of Shares of Restricted Stock that the offeree shall be entitled to purchase, (ii) the price to be paid, (iii) the rate at which Restricted Stock will vest, and (iv) the time within which the offeree must accept such offer, which shall in no event exceed six (6) months from the date of such Stock Purchase Rights are granted. The offer shall be accepted by execution of a Restricted Stock Purchase Agreement in the form determined by the Administrator. The Administrator may grant a Stock Purchase Right at a price equal to or in excess of the par value of the Shares; provided, that for any calendar year, the aggregate number of Shares subject to grants of Stock Purchase Rights granted during such calendar year with an Exercise Price less than the Fair Market Value per Share on the date of grant shall not exceed ten percent (10%) of the number of Shares subject to Options granted under the Plan in the preceding calendar year. (b) Company Repurchase Option. If a Purchaser's employment is terminated for any reason (including the death or Disability), the Restricted Stock Purchase Agreement may grant the Company the right to repurchase Restricted Stock issued to Purchaser (whether or not vested) on terms and conditions established by the Administrator it its sole discretion. The purchase price for such Shares shall be the original price paid by the Purchaser, and may be paid by cancellation of any indebtedness owing to the Company by Purchaser, or any other means approved by the Administrator. The Company's repurchase option shall lapse at a rate determined by the Administrator. (c) Other Provisions. The Restricted Stock Purchase Agreement shall contain such other terms, provisions and conditions not inconsistent with the Plan as may be determined by the Administrator in its sole discretion. In addition, the provisions of each Restricted Stock Purchase Agreement need not be the same with respect to each purchaser. (d) Rights as a Shareholder. Once a Stock Purchase Right is exercised, the purchaser shall have the rights equivalent to those of a shareholder, and shall be a shareholder when his or her purchase is entered upon the records of the duly authorized transfer agent of the Company. No adjustment will be made for dividends or other rights which are declared prior to the date a Stock Purchase Right is exercised, except as provided in Section 14 of the Plan. 12. Withholding Taxes. In accordance with any applicable administrative guidelines it establishes, the Administrator may allow a purchaser to pay the minimum amount of taxes required by law to be withheld (but no greater amount) as a result of a purchase of Shares or a lapse of restrictions in connection with Shares purchased pursuant to an Option or Right, by withholding from any payment of Common Stock due as a result of such purchase or lapse of restrictions, or by permitting the purchaser to deliver to the Company, Shares having a Fair Market Value, as determined by the Administrator, equal to the amount of such required withholding taxes. 13. Non-Transferability of Options and Rights. Unless otherwise specified by the Administrator in the Notice of Grant, no Option or Right may be sold, pledged, assigned, hypothecated, transferred, or disposed of in any manner other than by will or by the laws of descent or distribution and may be exercised, during the lifetime of the Optionee, only by the -10- Optionee. If the Administrator makes an Option or Right transferable, such Option or Right shall contain such additional terms and conditions as the Administrator deems appropriate. 14. Adjustments Upon Changes in Capitalization, Dissolution, Merger or Asset Sale. (a) Changes in Capitalization. Subject to any required action by the stockholders of the Company, the number of shares of Common Stock covered by each outstanding Option and Right, and the number of shares of Common Stock which have been authorized for issuance under the Plan but as to which no Options or Rights have yet been granted or which have been returned to the Plan upon cancellation or expiration of an Option or Right, as well as the price per share of Common Stock covered by each such outstanding Option or Right, shall be proportionately adjusted for any increase or decrease in the number of issued shares of Common Stock resulting from a stock split, reverse stock split, stock dividend, combination or reclassification of the Common Stock, or any other increase or decrease in the number of issued shares of Common Stock effected without receipt of consideration by the Company; provided, however, that conversion of any convertible securities of the Company shall not be deemed to have been "effected without receipt of consideration. Such adjustment shall be made by the Board, whose determination in that respect shall be final, binding and conclusive. Except as expressly provided herein, no issuance by the Company of shares of stock of any class, or securities convertible into shares of stock of any class, shall affect, and no adjustment by reason thereof shall be made with respect to, the number or price of shares of Common Stock subject to an Option or Right. (b) Dissolution or Liquidation. In the event of the proposed dissolution or liquidation of the Company, the Administrator shall notify each Optionee or holder of a Stock Purchase Right as soon as practicable prior to the effective date of such proposed transaction. The Administrator in its discretion may provide for such individuals to have the right to exercise his or her Options or Rights until ten (10) days prior to such transaction as to all of the Shares covered thereby, including Shares as to which the Option or Right would not otherwise be exercisable. In addition, the Administrator may provide that any Company repurchase rights applicable to any Shares purchased upon exercise of an Option or Right shall lapse as to all such Shares, provided the proposed dissolution or liquidation takes place at the time and in the manner contemplated. To the extent not been previously exercised, an Option or Right will terminate immediately prior to the consummation of such proposed action. (c) Merger or Asset Sale. In the event of a merger of the Company with or into another corporation, or the sale of substantially all of the assets of the Company, each outstanding Option or Right shall be assumed or an equivalent option or right substituted by the successor corporation or a Parent or Subsidiary of the successor corporation (the "Successor Corporation"), unless the Successor Corporation refuses to assume or substitute for the Option or Right, in which case the Optionee shall have the right to exercise the Option or Right as to all of the Shares subject thereto, including Shares as to which it would not otherwise be exercisable. If an Option or Right is exercisable in lieu of assumption or substitution in the event of a merger or sale of assets, the Administrator shall notify the Optionee in writing or electronically that the Option or Right shall be fully exercisable for a period of not less than fifteen (15) days from the -11- date of such notice, and the Option or Right shall terminate upon the expiration of such period. For the purposes of this paragraph, the Option or Right shall be considered assumed if, following the merger or sale of assets, the Option or Right confers the right to purchase or receive, for each Share subject to the Option or Right immediately prior to the merger or sale of assets, the consideration (whether stock, cash, or other securities or property) received in the merger or sale of assets by holders of Common Stock for each Share held on the effective date of the transaction (and if holders were offered a choice of consideration, the type of consideration chosen by the holders of a majority of the outstanding Shares); provided, however, that if such consideration received in the merger or sale of assets was not solely common stock of the Successor Corporation, the Administrator may, with the consent of the Successor Corporation, provide for the consideration to be received upon the exercise of the Option or Right, for each Share subject to the Option or Right, to be solely common stock of the Successor Corporation equal in fair market value to the per share consideration received by holders of Common Stock in the merger or sale of assets. 15. Date of Grant. The date of grant of an Option or Right shall be, for all purposes, the date on which the Administrator makes the determination granting such Option or Right, or such other later date as is determined by the Administrator. Notice of the determination shall be provided to each recipient of an Option or Right within a reasonable time after the date of such grant. 16. Amendment and Termination of the Plan. (a) Amendment and Termination. The Board may at any time amend, alter, suspend or terminate the Plan. (b) Effect of Amendment or Termination. No amendment, alteration, suspension or termination of the Plan shall impair the rights of any Optionee or holder of a Stock Purchase Right, unless mutually agreed otherwise between such person and the Administrator, which agreement must be in writing and signed by such person and on behalf of the Company. Termination of the Plan shall not affect the Administrator's ability to exercise the powers granted to it hereunder with respect to options and rights granted under the Plan prior to the date of such termination. 17. Conditions Upon Issuance of Shares. (a) Legal Compliance. Shares shall not be issued pursuant to the exercise of an Option or Right unless the exercise of such Option or Right and the issuance and delivery of the underlying Shares shall comply with Applicable Laws, and shall be further subject to the approval of counsel for the Company with respect to such compliance. (b) Investment Representations. As a condition to the exercise of an Option or Right, the Company may require the person exercising such Option or Right to represent and warrant at the time of any such exercise that the Shares are being purchased only for investment -12- and without any present intention to sell or distribute such Shares if, in the opinion of counsel for the Company, such a representation is required. 18. Liability of Company. (a) The inability of the Company to obtain authority from any regulatory body having jurisdiction, which authority is deemed by the Company's counsel to be necessary to the lawful issuance and sale of any Shares hereunder, shall relieve the Company of any liability in respect of the failure to issue or sell such Shares as to which such requisite authority shall not have been obtained. (b) If the Shares covered by an Option or Right exceeds, as of the date of grant, the number of Shares which may be issued under the Plan without additional shareholder approval, such Option or Right shall be void with respect to such excess Shares, unless shareholder approval of an amendment sufficiently increasing the number of Shares subject to the Plan is timely obtained in accordance with Section 20 of the Plan. 19. Reservation of Shares. The Company, during the term of this Plan, will at all times reserve and keep available such number of Shares as shall be sufficient to satisfy the requirements of the Plan. 20. Shareholder Approval. Continuation of the Plan shall be subject to approval by the stockholders of the Company within twelve (12) months before or after the date the Plan is adopted. Such shareholder approval shall be obtained in the manner and to the degree required under Applicable Laws. 21. Information to Optionees and Purchasers. The Company shall provide to each Optionee and Purchaser who acquires Shares pursuant to the Plan, not less frequently than annually during the period Options, Stock Purchase Rights or Restricted Stock held by such individuals, copies of annual financial statements. The Company shall not be required to provide such statements to key employees whose job duties assure their access to equivalent information. -13- EX-10.33 12 f79747ex10-33.txt EXHIBIT 10.33 EXHIBIT 10.33 SYBASE, INC. 1996 STOCK PLAN NOTICE OF GRANT AND RESTRICTED STOCK PURCHASE AGREEMENT You have been granted the right to purchase the number of Shares of Common Stock of the Company set forth below ("Stock Purchase Right"), subject to the terms and conditions of the Sybase, Inc. 1996 Stock Plan ("Plan"), and this Notice of Grant and Restricted Stock Purchase Agreement (collectively, the Agreement"). Unless otherwise defined below, capitalized terms shall have the same meanings set forth in the Plan. Purchaser: Address: Soc. Sec. No.: Purchase Price Per Share: $0.10 Number of Shares subject to Stock Purchase Right: Date of Grant: Purchase Deadline: IMPORTANT NOTE: YOU MUST EXERCISE THIS STOCK PURCHASE RIGHT, IF AT ALL, NO LATER THAN THE PURCHASE DEADLINE OR IT WILL TERMINATE AND YOU WILL HAVE NO FURTHER RIGHT TO PURCHASE THE SHARES. By signing below, you accept this Grant and you: (i) agree to the terms and conditions of this Agreement; (ii) represent that you have reviewed the Plan and the Agreement in their entirety, and have had an opportunity to obtain the advice of counsel with respect thereto; (iii) fully understand and accept all provisions hereof; (iv) agree to accept as binding, conclusive, and final all decisions or interpretations of the Plan and the Agreement by the Administrator; and (v) agree to notify the Company upon any change in the address indicated above. AGREED AND ACCEPTED: Signature: Print Name: -1- SYBASE, INC. 1996 STOCK PLAN RESTRICTED STOCK PURCHASE AGREEMENT Unless otherwise defined herein, capitalized terms below shall have the same meanings set forth in the Sybase, Inc. 1996 Stock Plan, as amended. 1. Purchase and Sale of Restricted Stock. The Company has granted a Stock Purchase Right to Purchaser for the number of Shares specified in the Notice of Grant on the preceding page ("Notice of Grant"). The Company hereby agrees to sell such Shares to the Purchaser at the per Share purchase price specified in the Notice of Grant ("Purchase Price") and on the following terms and conditions, and in consideration thereof, Purchaser agrees to be bound by the terms and conditions set forth herein. 2. Payment of Purchase Price. The Purchase Price for the Shares shall be paid on or before the Purchase Deadline specified in the Notice of Grant by delivery to the Company of payment in one of the following forms, as approved by the Company: (i) a check; (ii) cancellation of any or all of any indebtedness of the Company to the Purchaser; or (iii) a combination of (i) and (ii). 3. Release of Shares From Repurchase Option. One hundred percent (100%) of the Shares shall be released from the Company's Repurchase Option (defined in Section 4) on the _______ anniversary of the Date of Grant ("Release Date"), provided that the Purchaser has not ceased Continuous Status as an Employee or Consultant prior to such date. Prior to the Release Date, all Shares subject to the Company's Repurchase Option shall be defined in this Agreement as "Unreleased Shares." 4. Repurchase Option. If Purchaser ceases Continuous Status as an Employee or Consultant for any reason (including death or Disability), or in the event of Purchaser's Misconduct, the Company shall have the right to repurchase some or all of the Purchaser's Unreleased Shares for a period of sixty (60) days from the effective date of Purchaser's termination or Misconduct, as the case may be. The purchase price per Share for the Unreleased Shares shall equal the original Purchase Price per Share specified in the Notice of Grant (the "Repurchase Price"). If the Company elects to repurchase any of the Unreleased Shares, it shall deliver (i) a written notice of such election to the Purchaser (or the Purchaser's executor), and (ii) payment of the appropriate Repurchase Price in a form approved by the Company. Upon delivery of such notice and payment, the Company shall become the legal and beneficial owner of the Unreleased Shares purchased and all rights and interests therein or relating thereto, and the Company shall have the right to retain and transfer such Unreleased Shares to its own name. 5. Restriction on Transfer. Except for the transfer of the Shares to the Company or its assignees contemplated by this Agreement, none of the Shares or any beneficial interest therein shall be transferred, encumbered or otherwise disposed of in any way until such Shares are released from the Company's Repurchase Option in accordance with this Agreement. In addition, as a condition to any transfer of the Shares after expiration of the Company's Repurchase Option, the Company may, in its discretion, require: (i) that the Shares shall have been duly listed upon any national securities exchange or automated quotation system on which the Company's Common Stock may then be listed or quoted; (ii) that either (a) a registration statement under the Securities Act of -2- 1933, as amended ("Securities Act") with respect to the Shares shall be effective, or (b) in the opinion of counsel for the Company, the proposed purchase shall be exempt from registration under the Securities Act and the Purchaser shall have entered into agreements with the Company as reasonably required; and (iii) fulfillment of any other requirements deemed necessary by counsel for the Company to comply with Applicable Laws. 6. Retention of Shares. To ensure the availability for delivery of the Purchaser's Unreleased Shares upon repurchase by the Company pursuant to the Repurchase Option, the Company shall retain possession of the share certificates representing the Unreleased Shares, together with a stock assignment duly endorsed in blank, attached hereto as Exhibit A. The Unreleased Shares and related stock assignment shall be held by the Company until the Company's Repurchase Option expires. In addition, the Company may require the spouse of Purchaser, if any, to execute and deliver to the Company the Consent of Spouse in the form attached hereto as Exhibit B. When the Repurchase Option has been exercised or expires, the Company shall promptly deliver the certificate to the Company or the Purchaser, as the case may be. 7. Stockholder Rights. Subject to the terms hereof, the Purchaser shall have all the rights of a stockholder with respect to the Shares while they are retained by the Company pursuant to Section 6, including without limitation, the right to vote the Shares and to receive any cash dividends declared thereon. If, from time to time during the term of the Repurchase Option, there is (i) any stock dividend, stock split or other change in the Shares, or (ii) any merger or sale of all or substantially all of the assets or other acquisition of the Company, any and all new, substituted or additional securities to which the Purchaser shall be entitled by reason of the Purchaser's ownership of the Shares shall be immediately subject to the terms of this Agreement and included thereafter as "Shares" for purposes of this Agreement and the Repurchase Option. 8. Legends. The share certificate evidencing the Shares, if any, issued hereunder shall be endorsed with the following legend (in addition to any legend required under applicable state securities laws): THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO CERTAIN RESTRICTIONS UPON TRANSFER AND RIGHTS OF REPURCHASE AS SET FORTH IN AN AGREEMENT BETWEEN THE COMPANY AND THE STOCKHOLDER, A COPY OF WHICH IS ON FILE WITH THE SECRETARY OF THE COMPANY. 9. Tax Consequences. The Purchaser has reviewed with the Purchaser's own tax advisors the federal, state, local and foreign tax consequences of this investment and the transactions contemplated by this Agreement. The Purchaser is relying solely on such advisors and not on any statements or representations of the Company or any of its agents. The Purchaser understands that the Purchaser (and not the Company) shall be responsible for the Purchaser's own tax liability that may arise as a result of the transactions contemplated by this Agreement. The Purchaser understands that Section 83 of the Internal Revenue Code of 1986, as amended (the "Code"), taxes as ordinary income the difference between the purchase price for the Shares and the fair market value of the Shares as of the date any restrictions on the Shares lapse. In this context, "restriction" includes the right of the Company to buy back the Shares pursuant to the Repurchase Option. The Purchaser understands that the Purchaser may elect to be taxed at the time the Shares are purchased rather than when and as the Repurchase Option expires by filing an election under Section 83(b) of the Code with the IRS within 30 days from the date of purchase. The form for making this election is attached as Exhibit C hereto. -3- THE PURCHASER ACKNOWLEDGES THAT IT IS THE PURCHASER'S SOLE RESPONSIBILITY AND NOT THE COMPANY'S TO FILE TIMELY THE ELECTION UNDER SECTION 83(b), EVEN IF THE PURCHASER REQUESTS THE COMPANY OR ITS REPRESENTATIVES TO MAKE THIS FILING ON THE PURCHASER'S BEHALF. 10. General. (a) This Agreement shall be governed by the laws of the State of California. The Agreement, subject to the terms and conditions of the Plan, represents the entire agreement between the parties with respect to the purchase of Shares of Restricted Stock by the Purchaser. In the event of a conflict between the terms and conditions of the Plan and the terms and conditions of this Agreement, the terms and conditions of the Plan shall prevail. Unless otherwise defined herein, the terms defined in the Plan shall have the same defined meanings in this Agreement. (b) Any notice, demand or request required or permitted to be given by either the Company or the Purchaser pursuant to the terms of this Agreement shall be in writing and shall be deemed given when delivered personally or deposited in the U.S. Mail, First Class with postage prepaid, and addressed to the parties at the addresses of the parties set forth in the Notice of Grant, or such other address as a party may request by notifying the other in writing. A copy of any notice to the Escrow Holder shall be sent to the other party hereto. (c) The rights of the Company under this Agreement shall be transferable to any one or more persons or entities, and all covenants and agreements hereunder shall inure to the benefit of, and be enforceable by the Company's successors and assigns. The rights and obligations of the Purchaser under this Agreement may only be assigned with the prior written consent of the Company. (d) The Purchaser agrees upon request to execute any further documents or instruments necessary or desirable to carry out the purposes or intent of this Agreement. (e) PURCHASER ACKNOWLEDGES AND AGREES THAT THE RELEASE OF SHARES PURSUANT TO SECTION 3 HEREOF SHALL BE EARNED ONLY BY CONTINUING SERVICE AS AN EMPLOYEE OR CONSULTANT AT THE WILL OF THE COMPANY (UNLESS OTHERWISE AGREED IN WRITING) AND NOT THROUGH THE ACT OF BEING HIRED OR PURCHASING SHARES HEREUNDER. PURCHASER FURTHER ACKNOWLEDGES AND AGREES THAT THIS AGREEMENT. -4- EXHIBIT A ASSIGNMENT SEPARATE FROM CERTIFICATE FOR VALUE RECEIVED I, __________________________, hereby sell, assign and transfer unto _______________________________________(__________) shares of the Common Stock of Sybase, Inc. standing in my name of the books of said corporation represented by Certificate No. ________ herewith and do hereby irrevocably constitute and appoint _____________________________ to transfer the said stock on the books of the within named corporation with full power of substitution in the premises. This Stock Assignment may be used only in accordance with the Notice of Grant and the Restricted Stock Purchase Agreement between Sybase, Inc. and the undersigned dated February 1, 2001. Dated: , 200 --------------- -- Signature: -------------------------------- INSTRUCTIONS: PLEASE DO NOT FILL IN ANY BLANKS OTHER THAN THE SIGNATURE LINE. The purpose of this assignment is to enable the Company to exercise the Repurchase Option, as set forth in the Agreement, without requiring additional signatures on the part of the Purchaser. -5- EXHIBIT B CONSENT OF SPOUSE I, ____________________, spouse of ___________________, have read and approve the foregoing Notice of Grant and Restricted Stock Purchase Agreement (the "Agreement"). In consideration of the Company's grant to my spouse of the right to purchase shares of Sybase, Inc. set forth in the Agreement, I hereby appoint my spouse as my attorney-in-fact in respect to the exercise of any rights under the Agreement and agree to be bound by the provisions of the Agreement insofar as I may have any rights in said Agreement or any shares issued pursuant thereto under the community property laws or similar laws relating to marital property in effect in the state of our residence as of the date of the signing of the foregoing Agreement. Dated: , 200 --------------- -- -------------------------------- Signature of Spouse -6- EXHIBIT C ELECTION UNDER SECTION 83(b) OF THE INTERNAL REVENUE CODE OF 1986 The undersigned taxpayer hereby elects, pursuant to Section 83(b) of the Internal Revenue Code of 1986, as amended, to include in taxpayer's gross income for the current taxable year the amount of any compensation taxable to taxpayer in connection with his or her receipt of the property described below: 1. The name, address, taxpayer identification number and taxable year of the undersigned are as follows: Name: ------------------------------------------------- Spouse: ------------------------------------------------- Taxpayer I.D. No.: ------------------------------------------------- Address: ------------------------------------------------- ------------------------------------------------- Tax Year: ------------------------------------------------- 2. The property with respect to which the election is made is described as follows: __________________________ shares of the Common Stock of Sybase, Inc. (the "Company"). 3. The date on which the property was transferred is __________________. 4. The property is subject to the following restrictions: The Shares may be repurchased by the Company or its designee upon certain events. This right lapses with regard to a portion of the Shares based on the Purchaser's continued status as an employee or consultant over time. 5. The fair market value at the time of transfer, determined without regard to any restriction other than a restriction which by its terms will never lapse, of such property is: $______________________. 6. The amount (if any) paid for such property is: $______________________. The undersigned has submitted a copy of this statement to the person for whom the services were performed in connection with the undersigned's receipt of the above-described property. The transferee of such property is the person performing the services in connection with the transfer of said property. The undersigned understands that the foregoing election may not be revoked except with the consent of the Commissioner. Dated: , 200 --------------- -- -------------------------------- Signature of Taxpayer The undersigned spouse of taxpayer joins in this election. Dated: , 200 --------------- -- -------------------------------- Spouse of Taxpayer -7- EX-21 13 f79747ex21.txt EXHIBIT 21 EXHIBIT 21 SYBASE, INC. SUBSIDIARIES (AS OF MARCH 14, 2002)
COMPANY NAME JURISDICTION OF FORMATION - ------------ ------------------------- Sybase Argentina, S.A. Argentina Sybase Australia Pty Limited Australia Sybase BVBA/SPRL Belgium Sybase Brasil Software Limitada Brazil Sybase (BVI) Limited British Virgin Islands Sybase Canada Limited Canada iAnywhere Solutions Canada Limited Canada Sybase Software (China) Co., Ltd. China Sybase (Cyprus) Limited Cyprus Sybase Central and Eastern Europe s.r.o. Czech Republic Denmark ApS Denmark Sybase France S.a.r.l. France Sybase GmbH Germany New Era of Networks GmbH Germany Sybase China Limited Hong Kong Sybase Hong Kong Limited Hong Kong Financial Services Square Limited Hong Kong Sybase (Hungary) Group Financing Limited Liability Company Hungary Sybase India, Ltd. India Sybase (India) Private Limited India P.T. Sybase Informatindo Indonesia Indonesia Sybase Ireland Limited IRELAND Sybase Italia S.r.l. Italy Sybase KK Japan Powersoft K.K. Japan Sybase Korea, Ltd. Korea Sybase, Inc. Lao People's Democratic Republic Sybase Luxembourg S.a.r.l. Luxembourg Sybase Europe Luxembourg S.a.r.l. Luxembourg Sybase Software (Malaysia) Sdn Bhd Malaysia Sybase de Mexico, S. de R.L. de C.V. Mexico Sybase Eastern Europe B.V. Netherlands Sybase Europe B.V. Netherlands Sybase Nederland B.V. Netherlands iAnywhere Solutions B.V. Netherlands Sybase (N.Z.) Limited New Zealand Sybase Norge AS Norway Sybase Philippines Inc. Philippines Sybase (Singapore) Pte Ltd. Singapore Sybase Iberia S.L. Spain Sybase Sverige AB Sweden Sybase (Schweiz) GmbH Switzerland Sybase Taiwan Co., Ltd. Taiwan Sybase (Thailand) Limited Thailand Sybase International Limited United Kingdom Sybase (UK) Limited United Kingdom Sybase International Holdings Corporation United States iAnywhere Solutions, Inc. United States Financial Fusion, Inc. United States Sybase Global, LLC United States Sybase, Inc. United States New Era of Networks, Inc. United states
EX-23.1 14 f79747ex23-1.txt EXHIBIT 23.1 EXHIBIT 23.1 CONSENT OF INDEPENDENT AUDITORS We consent to the incorporation by reference in the Registration Statements (Forms S-8) and related Prospectuses pertaining to the New Era of Networks, Inc. Amended and Restated 1995 Stock Option Plan, the New Era of Networks, Inc. Amended and Restated 1997 Director Option Plan; New Era of Networks, Inc. 1998 Nonstatutory Stock Option Plan, Century Analysis Inc. 1996 Equity Incentive Plan, Convoy Corporation 1997 Stock Option Plan, Microscript, Inc. 1997 Stock Option Plan, Home Financial Network,Inc. 1995 Stock Plan, the 1999 Nonstatutory Stock Plan, the 1996 Stock Plan, the 1988 Stock Option Plan, the 2001 Director Stock Option Plan, the 1992 Director Stock Option Plan, the 1991 Employee Stock Purchase Plan, the 1991 Foreign Subsidiary Employee Stock Purchase Plan, the Powersoft Corporation 1994 Amended and Restated Incentive and Non-Qualified Stock Option Plan, the Complex Architectures, Inc. Stock Option Plan and the Letter Agreement dated February 25, 1994 between Complex Architectures, Inc. and Frank A. Sola, and the Expressway Technologies 1987 Stock Option Plan, the Registration Statement (Form S-3) dated as of June 26, 2000, for the issuance of 7,381,917 shares in connection with Sybase's acquisition of Home Financial Network, and the Registration Statement (Form S-4) dated as of March 15, 2001, of our report dated January 24, 2002, with respect to the consolidated financial statements of Sybase, Inc. included in the Annual Report (Form 10-K) for the year ended December 31, 2001. Our audits also included the financial statement schedule of Sybase, Inc. listed in Item 14(a). This schedule is the responsibility of the Company's management. Our responsibility is to express an opinion based on our audits. In our opinion, the financial statement schedule referred to above, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly in all material respects the information set forth therein. /s/ ERNST & YOUNG LLP Walnut Creek, California March 28, 2002 -----END PRIVACY-ENHANCED MESSAGE-----