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SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
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FORM 10-K
Annual Report Pursuant To Section 13 or 15(d) Of The
Securities Exchange Act Of 1934
For the fiscal year ended MARCH 31, 1997
Commission file number 0-22210
SUMMA FOUR, INC.
(Exact name of registrant as specified in its charter)
Delaware 02-0329497
(State or other jurisdiction (IRS employer identification number)
of incorporation or organization)
25 Sundial Avenue, Manchester, New Hampshire 03103
(Address of principal executive office)
Registrant's telephone number, including area code: (603) 625-4050
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Securities registered pursuant to Section 12(b) of the Act: None
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Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.01 par value
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(Title of Class)
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Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K ( ).
The aggregate market value of the voting stock held by non-affiliates of the
registrant was approximately $41,695,000 as of April 30, 1997. There were
6,481,762 shares of Common Stock outstanding as of May 31, 1997.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the definitive proxy statement (the "Definitive Proxy Statement") to
be filed with the Securities and Exchange Commission relative to the Company's
1997 annual meeting of stockholders are incorporated by reference in Part III.
Index to Exhibits begins on Page 32
Total Number of Pages 41
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PART I
Item 1 - Business
THE COMPANY
Summa Four, Inc. (the "Company") is a leading provider of open,
programmable switches that enable telecommunications services providers to build
and deploy advanced wireline and wireless services. Examples of services offered
by companies using Summa Four's switches include voice and fax messaging, single
number routing, intelligent 800 calling, voice activated dialing, calling card
applications, automated operator services and personal communications services
(PCS). The Company's products are based on an open architecture and have a
universal application interface which supports the economical and rapid
introduction of these and other public telephone network applications.
Many of the world's largest telecommunications service providers are
end-users of the Company's products, including AT&T, MCI, Sprint, the Regional
Bell Operating Companies ("RBOCs"), GTE, British Telecom, Mercury Communications
(a division of Cable and Wireless), Telstra (in Australia), Singapore Telecom
and Telefonica (in Spain). The Company sells its products directly to end-users
and through relationships with systems integrators, including IBM, Unisys,
Tandem, Vicorp, Intellivoice, Mosaix and more recently, an increasing number of
emerging application developers. Through March 31, 1997, the Company had sold
more than 1,600 programmable switches in over 30 countries worldwide. For the
year ended March 31, 1997, IBM, Unisys and Open Development Corporation
represented approximately 12%, 10%, and 8%, respectively of the Company's net
revenues.
Examples of specific applications of the Company's switches include the
following: (i) a RBOC has built one of the world's largest integrated voice
messaging systems; (ii) a US long distance telephone company has deployed a
voice activated dialing system used in conjunction with their calling card
offering; (iii) a Pacific Asia Public Network Operator has introduced a
network-based conference calling application; (iv) an International Simple
Reseller in Europe has constructed an alternative long distance network
connecting eight European cities; (v) a major wireless vendor has deployed PCS
services.
RECENT DEVELOPMENTS
In January 1997, Robert A. Degan, was appointed President and Chief
Executive Officer of the Company. Mr. Degan has been a Director of the Company
since 1984 and was previously Executive Vice President of Sync Research.
In January 1997, Barry R. Gorsun resigned as Chief Executive Officer of the
Company. Mr. Gorsun is providing transitional assistance to Mr. Degan until July
1997, at which time Mr. Gorsun is retiring from the Company.
In March 1997, Theresa Pratt resigned as Vice President of Engineering. Ms.
Pratt had been employed by the Company since July 1995.
In April 1997, the Company completed the local incorporation of its
Japanese subsidiary, Summa Four Japan KK.
In May 1997, Richard Swee was appointed Vice President Engineering. Mr.
Swee was previously Vice President Engineering for Sync Research.
In May 1997, Kenneth Estey resigned as Senior Vice President of Customer
Satisfaction/Operations. Mr. Estey had been employed by the Company since
December 1995.
The Company was incorporated under the laws of Delaware on June 28, 1976,
its principal executive offices are located at 25 Sundial Avenue, Manchester, NH
03103-7251 and its telephone number is (603) 625-4050.
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In June 1997, the Company announced its intention to form a business
partnership with Dialogic, Inc., the leading manufacturer of high-performance
computer telephony components, and Junction, Inc., a Cupertino, California-based
development company whose principals have significant experience in the design
and development of telephony solutions, to develop what is expected to be the
industry's first telco-capable, programmable switching platform founded on
standards-based hardware and software. This fully-integrated, intelligent
platform is intended to enable telecommunications service providers to reduce
significantly the cost and time-to-market of delivering advanced services.
VCO OPEN PROGRAMMABLE SWITCHES
The Company offers two switching products. The Company's VCO (virtual
central office) 80 Open Programmable Switch accounted for the majority of fiscal
year 1997 unit shipments. The VCO 80 Open Programmable Switch sales were
supplemented by sale of the Company's VCO 20 switch. The VCO 20 Open
Programmable switch is a lower capacity platform that provides the full
capabilities of the VCO 80 and is well suited for highly distributed switching
applications such as those found in wireless networks.
The VCO Series of switches can be deployed in a variety of ways -- as a
fully network-compliant switching foundation for an application intelligent
peripheral, as a core transport switch in wireline networks, and/or as a mobile
switching center, base station controller or local loop controller for wireless
networks.
As an intelligent peripheral, VCO switches support services by routing
traffic to service resources that perform functions such as voice prompting,
recording and recognition. Summa Four does not manufacture the peripheral that
performs the service functions, but provides both the platform that connects the
peripheral to the Central Office switch and the application programming
interface (API) for developing new services.
The Company's open, programmable switches and the service resources are
controlled by a host computer wherein the intelligent network service software
resides. The VCO's open architecture allows the developer to select the computer
and operating system that best suits an application. Each of the Company's VCO
switches are comprised of a non-blocking switching matrix, standards-based
interface hardware and software (to communicate to the public switched telephone
networks), service circuit cards (which perform various functions such as speech
prompting and recording) and call control software (which allows discrete
control over all elements of the voice and data call path). This
standards-based, open architecture platform enables a wide variety of
intelligent peripheral developers to focus their attention on application
development through the API, rather than on complex switching functions.
The VCO switches are modular and scaleable and incorporate advanced
technologies such as SS7, ISDN, hierarchical call control and SNMP network
management.
MARKETING AND SALES
In order to meet the needs of customers with diverse and complex network
requirements, the Company sells its products through the coordinated efforts of
its direct sales force and selected systems integrators which include value
added resellers and an increasing number of emerging application developers.
These resellers, which include computer companies (such as IBM, Unisys, Tandem),
voice processing equipment/software vendors (such as Mosaix), and application
developers (such as Vicorp, Open Development Corporation, Intellivoice), are
generally selected for their capacity to offer the Company's products in
combination with related products and services, as well as for their capability
to serve particular markets.
The Company's products have been installed in countries on six continents.
International sales, as a percentage of total sales, were approximately 44% and
32% in fiscal 1997 and fiscal 1996, respectively. The Company believes the
increase in international sales is primarily attributable to the adoption of the
Company's products by public network operations worldwide spurred by the rapid
expansion of markets and the expansion of the Company's international sales
operations in Europe and Asia. Additionally, the Company sells products to
systems integrators, located both in the United States and internationally, who
market the Company's products worldwide.
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BACKLOG
The Company's backlog was approximately $6,200,000 and $7,200,000 at March
31, 1997 and 1996, respectively. The Company includes in its backlog only
written orders for products and related services scheduled to be shipped or
rendered within one year.
CUSTOMER SUPPORT AND SERVICE
The Company services, repairs and provides technical support for its
products. A high level of continuing customer service and support is integral to
the Company's objective of developing long-term relationships with its customers
who require uninterrupted operations of the Company's products. The Company's
products generally have warranties of 12 months. Support services include
24-hour technical support, remote access diagnostic and servicing capabilities,
extended maintenance and support programs, comprehensive technical customer
training, customer documentation, field installation and emergency replacement.
PRODUCT DEVELOPMENT
In fiscal 1997, the Company (i) introduced Release 4.0 Generic Operating
Software, the principle operating software for the VCO 20; (ii) continued its
focus on improved reliability; (iii) increased international certifications;
(iv) added ISDN interfaces for Europe (NET-5) and the United States (National
ISDN II) and Japan; (v) introduced SS7 variants in Thailand, Chile, and Hong
Kong; and, (vi) received multi-country certification for, and began volume
shipments of the VCO Series/20 switch.
In addition, the Company developed and delivered the following product
enhancements:
O Increased system availability through release of a new Network Bus
Controller Card (NBC-3) and software which permits VCO systems to be
upgraded without requiring downtime.
O A 4 link support for SS7 which will provide improved
price/performance factors.
O JATE agency approval for both VCO Series/80 and Series/20 in Japan.
In fiscal years 1997, 1996 and 1995, the Company's research and development
expenditures were $10,478,000, $9,131,000, and $5,863,000, respectively. All
such costs have been expensed as incurred. In addition, during fiscal years 1996
and 1995, the Company received $188,000 and $235,000, respectively, from
customer sponsored development projects which have been recorded as a reduction
to the related research and development expense. At March 31, 1997, 68 employees
and 16 persons retained on a contract basis for specific projects were engaged
in product development.
The Company recently announced its intention to form a product development
business relationship with Dialogic, Inc. and a related development arrangement
with Junction, Inc. which the Company expects will result in the creation of
future products. The Company anticipates that the expenses associated with this
developmental activity will be partially funded from its fiscal 1998 budget with
the balance being charged to operating expenses. There can be no assurance that
this relationship will result in the development of salable product(s) which
will be beneficial to the future growth of the Company or that products produced
by this relationship will be developed in a cost effective manner and be
available for sale within the time frame required.
Summa Four believes that the ongoing, timely development of new products
and applications, and enhancements to existing products are essential for the
Company to compete in the programmable switch market and the Company expects to
continue to devote substantial resources to research and development in fiscal
year 1998.
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MANUFACTURING
The Company's manufacturing operations consist of the purchase and
management of materials and sub- assemblies, final assembly, testing and quality
control. The Company presently uses independent third party contract
manufacturing companies, with whom the Company has had working relationships
ranging from less than one year to four years, to perform most of the production
processes related to the manufacture of printed circuit board subassemblies. The
Company installs software into the electronically programmable read-only memory
(EPROM) of its systems which enhances maintenance of quality control and
security. This manufacturing process enables the Company to configure the
hardware and software in combinations to meet a wide variety of customer
requirements in a timely manner. The Company uses automated testing equipment,
as well as comprehensive inspection and statistical process control testing, to
assure the quality and reliability of its products. Test programs, fixtures and
stations are developed and maintained by the Company and are capital assets of
the Company. To date, the Company has not experienced significant customer
returns.
The Company generally uses industry standard components for its products.
Certain components, including microprocessors and power supplies, presently are
being purchased from a single source or from limited sources. The Company has
been able to obtain adequate supplies of components for it's products in a
timely manner from a number of regular sources of supply, or, when necessary,
from alternative sources of supply. The Company believes that in most of these
cases, alternative sources of supply are either currently available or could be
developed over a moderately short period of time. In addition, in certain
instances, components required for certain sub-assemblies used in the Company's
products are no longer being manufactured. The Company is redesigning such
sub-assemblies in order to eliminate production interruption that could occur if
such components cannot be procured. The inability to develop alternative
sources, if required, or an inability to meet demand, or an interruption in
supply or a significant increase in the price of one or more components, would
adversely affect the Company's operating results and could adversely impact
customer relationships.
The Company is ISO 9001 and BABT (British Approvals Board for
Telecommunications) certified. Compliance audits are conducted at least
annually.
COMPETITION
The market for programmable switching products is highly competitive and is
subject to price and margin pressures and rapid technological change. At
present, the Company's principal competition comes from Excel, Inc., the DTS
Division of Harris Corp. and Redcom Laboratories. The Company expects
competition to increase in the future from existing competitors in the
programmable switching market and from other companies which may enter the
Company's existing or future markets, including major central office switch
vendors such as Lucent Technologies, Digital Switch Corporation, Northern
Telecom and Siemens. In addition, the Company believes that as the programmable
switch market evolves, competition and/or partnering arrangements may develop
among the companies which currently offer products and services to particular
segments of the programmable switch market, including private networking
companies, central office switch manufacturers, voice processing companies, PBX
manufacturers and others. Many of these current and potential competitors may
have substantially greater financial, marketing and technical resources than the
Company. The development of such competition or of such partnering arrangements
could have a material adverse effect on the Company's business, results of
operation and financial condition.
The Company believes that the principal competitive factors in the market
for programmable switching systems are: knowledge of the requirements applicable
to telephone companies and broad applications experience; technical benefits of
product design, including an open architecture to permit customer programming;
market distribution strategies; product flexibility and scalability;
reliability; responsiveness to customer needs; service and price.
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PATENTS, PROPRIETARY RIGHTS AND LICENSES
The Company relies on a combination of patent, copyright and trade secret
laws to establish and maintain its proprietary rights in its products. The
Company's products are generally sold pursuant to purchase and license
agreements which contain terms and conditions restricting unauthorized
disclosure or reverse-compiling of the proprietary software embodied in its
products. The Company is the owner of five United States patents with
expirations ranging from the year 1998 to 2014 and has an application pending
for one additional patent in the United States, covering certain aspects of the
Company's products. No assurance can be given that the Company's patent
application will be granted, or if granted, they will be upheld if challenged.
Although the Company relies, to a great extent, on trade secret protection for
much of its technology and has obtained confidentiality agreements from its
employees, there can be no assurance that third parties will not either
independently develop the same or similar technology, obtain unauthorized access
to the Company's proprietary technology or misuse the technology to which the
Company has granted access.
The Company believes that, because of the rapid pace of technological
change in the voice and data communications market, the legal protections for
its products are less significant factors to the Company's success than the
knowledge, ability and experience of the Company's employees, the frequency of
product enhancements and the quality of support for services provided by the
Company.
Certain technology used in the Company's products is licensed from two
other parties on a non-exclusive basis. Royalties due under these license
agreements have either been fully-paid or are payable based upon units shipped.
The non-renewal of these licenses could have a material adverse effect on the
Company's operations.
The telecommunications industry is characterized by the existence of a
large number of companies holding patents and frequent litigation based on
allegations of patent infringement The Company is not aware of any infringement
by its products or technology of the proprietary rights of others. However,
there can be no assurance that third parties will not assert infringement claims
against the Company, that any such assertion of infringement will not result in
litigation, or that the Company would prevail in such litigation or be able to
license any valid and infringed patents of third parties on commercially
reasonable terms. Furthermore, litigation, regardless of its outcome, could
result in substantial cost to and diversion of effort by the Company. Any
infringement claims or litigation against the Company could materially and
adversely affect the Company's business, results of operations and financial
condition.
EMPLOYEES
At March 31, 1997 the Company employed 190 persons. In addition the Company
retained, on a contract basis, 26 persons for specific temporary projects. The
Company believes that its future growth and success will depend in large part
upon its ability to continue to attract and retain highly qualified personnel
who are in great demand. The Company has no collective bargaining agreement with
its employees.
Item 2 - Properties
The Company's principal administrative, sales and marketing, development,
manufacturing and support facility is located in Manchester, New Hampshire and
consists of approximately 71,000 square feet under a lease that will expire in
August 1998. In addition, the Company leases and/or occupies nine additional
sales offices in major metropolitan areas in the United States, and has
international offices in England, Spain, Singapore and Japan.
Item 3 - Legal Proceedings
On August 2, 1995, Claircom Communications Group, Inc. ("Claircom") brought
an action against the Company in the King County (Washington) Superior Court
alleging breach of contract, breach of warranty and various related claims and
seeking an accounting and damages arising from the joint development of a cabin
telecommunications unit (CTU), which is part of a cabin communications system,
to be installed in commercial passenger aircraft for providing communications
services between the aircraft and the ground. On October 11, 1995, the Company
filed an answer in the Washington action denying Claircom's allegations and
asserted a Counterclaim. The Company also brought an action against Claircom, in
the Hillsborough County (New
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Hampshire) Superior Court on September 12, 1995, seeking payment of royalties,
protection of its trade secrets and damages for breach of contract under certain
New Hampshire statutes. Claircom filed a Motion to Dismiss or Stay the New
Hampshire action. On October 12, 1995 the New Hampshire court denied the
Company's motion for preliminary injunction and Claircom's motion to dismiss or
stay. On October 30, 1995, the Washington court granted the Company's motion to
stay the Washington action. Claircom's motions to reconsider the orders of the
New Hampshire and the Washington courts have both been denied. Claircom recently
amended its counterclaims to add claims for fraudulent inducement, intentional
misrepresentation and a claim under the New Hampshire Consumer Protection Act.
The Company is preparing a response denying the new claims and is considering a
motion to dismiss certain counts. The parties are moving forward in the New
Hampshire action and while the discovery phase continues, a May 1998 trial date
has been set. No estimate of the probable outcome of this litigation can be made
at this time. However, an unfavorable outcome could have a materially adverse
effect on the Company's financial condition, results of operations, and/or cash
flows.
Item 4 - Submission of Matters To a Vote of Security Holders
None.
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PART II
Item 5 - Market For Registrant's Common Equity and Related Stockholder Matters
The Company completed its Initial Public Offering on September 23, 1993.
The Common Stock of the Company is listed on the Nasdaq National Market
("Nasdaq") and is traded in the over-the-counter market under the symbol "SUMA".
The following table sets forth the high and low bid prices for the Common Stock
as reported by Nasdaq for each of the periods indicated:
<TABLE>
<CAPTION>
High Low
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<S> <C> <C>
Fiscal -- 1997
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First Quarter $ 20 $12 1/4
Second Quarter $15 7/8 $11 3/8
Third Quarter $14 1/8 $ 7 1/2
Fourth Quarter $11 3/4 $ 7 3/8
Fiscal -- 1996
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First Quarter $29 3/4 $19 1/4
Second Quarter $29 1/2 $20 3/4
Third Quarter $23 3/4 $11 7/8
Fourth Quarter $15 1/8 $ 8
</TABLE>
At April 30, 1997, there were approximately 86 stockholders of record. This
number does not reflect persons or entities who hold their stock in nominee or
"street name" through various brokerage firms. The Company estimates that there
are approximately 4,700 additional beneficial holders when such "street names"
are included.
Dividend Policy
Except for an extraordinary dividend paid in fiscal 1992 in connection with
the sale of a subsidiary, the Company has never declared or paid cash dividends
on its Common Stock and currently intends to retain all of its earnings to
finance future growth, and therefore does not anticipate paying any cash
dividends in the foreseeable future.
Item 6 - Selected Financial Data
The following table summarizes certain selected historical consolidated
financial data which should be read in conjunction with the Company's
consolidated financial statements and accompanying notes included elsewhere
herein.
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<TABLE>
<CAPTION>
Years ended March 31,
(In thousands, except per share data)
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Statements of Income Data:
Net revenues $44,316 $41,193 $37,136 $27,257 $15,125
Cost of revenues (1) 18,144 14,467 12,367 9,114 5,499
------- ------- ------- ------- -------
Gross profit 26,172 26,726 24,769 18,143 9,626
Operating expenses (1):
Selling, general and administrative 14,196 13,023 11,968 8,434 5,087
Research and development 10,478 9,131 5,863 3,999 2,612
------- ------- ------- ------- -------
Total operating expenses 24,674 22,154 17,831 12,433 7,699
Operating income 1,498 4,572 6,938 5,710 1,927
Other income (expense):
Litigation settlement, net (2) -- -- -- -- (1,290)
Interest income, net 1,219 1,502 1,540 605 27
Other, net -- -- -- -- (140)
------- ------- ------- ------- -------
Income before income taxes 2,717 6,074 8,478 6,315 524
Provision for income taxes (3) 869 2,309 3,055 1,028 173
------- ------- ------- ------- -------
Net income $ 1,848 $ 3,765 $ 5,423 $ 5,287 $ 351
======= ======= ======= ======= =======
Net income per share $ .30 $ .59 $ .82 $ .92 $ .08
Weighted average common and common
equivalent shares outstanding 6,121 6,388 6,605 5,738 4,351
Balance Sheet Data:
Cash and cash equivalents $ 6,169 $ 4,681 $ 7,070 $ 2,761 $ 2,347
Working capital 22,960 24,861 28,953 15,686 4,587
Total assets 56,453 57,699 55,175 46,635 9,606
Long term liabilities 676 863 1,250 205 331
Stockholders' equity 45,649 49,137 48,033 40,684 5,753
</TABLE>
(1) For the fiscal years ended March 31, 1996, 1995, and 1994, a portion of
customer service ($650, $577 and $21, respectively) and research and
development ($230, $0 and $0, respectively) expenses were reclassified to
cost of revenues. In addition, corporate quality expenses of $214, $181 and
$84, respectively, were reclassified from cost of revenues to selling,
general and administrative expenses. These reclassifications had no effect
on operating or net income. All fiscal 1997 amounts are stated in a manner
which is consistent with these reclassifications.
(2) In fiscal 1993, the Company settled a lawsuit which alleged breach of
contract and patent infringement at a net expense of $1,290.
(3) In fiscal 1997, the Company reduced its tax rate to 32% from various other
rates in previous years.
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Item 7 - Management's Discussion and Analysis of Financial Condition and Results
of Operations
This Annual Report on Form 10-K contains forward-looking statements that
involve a number of risks and uncertainties. There are a number of factors that
could cause the Company's actual results to differ materially from those
forecast or projected in such forward-looking statements, including those
discussed below. Investors are cautioned not to place undue reliance on these
forward-looking statements which speak only as of the date hereof.
<TABLE>
The following table sets forth, for the periods indicated, certain
consolidated financial data as a percentage of net revenues:
<CAPTION>
Years ended March 31,
---------------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Net revenues 100.0% 100.0% 100.0%
Cost of revenues 40.9 35.1 33.3
----- ----- -----
Gross profit 59.1 64.9 66.7
Operating expenses:
Selling, general and administrative 32.0 31.6 32.2
Research and development 23.7 22.2 15.8
----- ----- -----
Total operating expenses 55.7 53.8 48.0
----- ----- -----
Operating income 3.4 11.1 18.7
Other income:
Interest income, net 2.7 3.6 4.1
----- ----- -----
Income before income taxes 6.1 14.7 22.8
Provision for income taxes 1.9 5.6 8.2
----- ----- -----
Net income 4.2% 9.1% 14.6%
===== ===== =====
</TABLE>
RESULTS OF OPERATIONS
FISCAL 1997 COMPARED WITH FISCAL 1996
Net revenues for fiscal 1997 increased by $3.1 million (8%) to $44.3
million, from $41.2 million in fiscal 1996. This increase resulted primarily
from increased shipments of VCO 80 systems resulting in part from the broadening
of the Company's indirect sales channels, the introduction of the VCO 20 systems
beginning in the second quarter of fiscal 1997, increased revenues from customer
support and training and growth in international shipments. These revenue
increases were partially offset by a decline in the sale of sub-assemblies for
existing system expansion, lower average selling prices realized as the result
of a price reduction initiated during the year and lower shipments to the
Company's Inter-exchange Carrier (IXC) customers which represented 25% of net
revenues in fiscal 1996 and 12% of net revenues in fiscal 1997. International
revenues in fiscal 1997 were $19.3 million, or 44% of net revenues, compared to
$13.2 million, or 32% of net revenues, in fiscal 1996. During the year,
twenty-eight new customers were added. The Company does not believe that the
percentage increase in net revenues for the year ended March 31, 1997 should be
relied upon as an indication that the Company's revenues will increase in any
future period. Further, the Company believes that its net revenues may level off
or even decline in certain periods preceding the introduction of an enhanced
version of its VCO 20 switch targeted for the fourth quarter of fiscal 1998 and
a new line of standards-based programmable switches targeted for fiscal 1999.
Cost of revenues consists of production, shipping and warranty costs. Gross
profit decreased $.5 million (2%) to $26.2 million for fiscal 1997, compared to
$26.7 million in fiscal 1996. Gross margin decreased to 59% in fiscal 1997 from
65% in fiscal 1996. The decrease in gross margin in fiscal 1997 resulted
primarily from increased discounts associated with growing indirect distribution
channels, a change in the product mix whereby more thinly configured systems
were shipped to customers, a price reduction implemented in the second quarter
of fiscal 1997 to stimulate sales to resellers and the increase of service
revenue as a percent of total revenues at lower gross margins. The Company does
not believe the current gross margins are necessarily indicative of future gross
margins which may be affected by the level of net revenues, customer mix, cost
of components, competitive pricing pressure, and discounts granted to high
volume purchases. As stated above, the Company's gross margins have been
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declining and may continue to decline as a result of continued competitive
pricing pressure and increased use of indirect channels of distribution. A
reclassification of a portion of customer service and research and development
operating expenses to cost of revenues are reflected in these results for the
fiscal years ended March 31, 1996 and 1995. (See note 1 of the Notes to
Consolidated Financial Statements.)
Research and development expenses in fiscal 1997 increased by $1.4 million
(15%) to $10.5 million compared with $9.1 million in fiscal 1996. As a
percentage of net revenues, research and development expenses increased to 24%
in fiscal 1997 as compared with 22% in fiscal 1996. The increase in fiscal 1997
was primarily the result of the expansion of the Company's software engineering
staff, increased utilization of contract engineering resources and expanded
development efforts for international markets. This increased spending was
focused towards enhancing the functionality of the Company's VCO product lines,
supporting a higher number of useable ports with the introduction of Release 4.0
Generic Operating Software (1776 ports), increased international certifications,
and ISDN interfaces for Europe, U.S. and Japan. The Company believes that an
increased level of expenditures for research and development will continue
through at least its next fiscal year. The Company recently announced its
intention to form a product development business relationship Dialogic, Inc. and
a related development arrangement with Junction, Inc. which the Company expects
will result in the creation of future products. The Company anticipates that the
expenses associated with this developmental activity will be partially funded
from its fiscal 1998 budget; the balance will be charged to operating expenses.
To date, all of the Company's research and development costs have been expensed
as incurred. During fiscal 1997, no payment was received and during fiscal 1996,
$188,000 was received from customer sponsored development projects and recorded
as a reduction to the related research and development expenses.
Selling, general and administrative expenses increased by $1.2 million
(9%) to $14.2 million in fiscal 1997 compared with $13.0 million in fiscal
1996. This increase was primarily attributable to expansion of the Company's
direct sales and support organization and increased professional services
costs. As a percentage of net revenues, selling, general and administrative
expenses remained constant at 32%.
Operating income decreased by $3.1 million to $1.5 million, or 3% of net
revenues, in fiscal 1997, compared to $4.6 million, or 11% of net revenues, in
fiscal 1996. The decrease in operating income as a percentage of net revenues
was primarily the result of lower gross margins and higher spending for research
and development.
Net interest income of $1.2 million in fiscal 1997 decreased by $.3 million
as compared to fiscal 1996. The reduction principally resulted from lower
interest earned on a smaller investment base and foreign exchange transaction
losses.
The Company's effective tax rate in fiscal 1997 was 32% compared with 38%
in fiscal 1996. This reduction was primarily due to credits attributable to
tax-exempt interest and increases in international sales made through its
foreign sales corporation. The Company expects its tax rate in fiscal 1998 to be
approximately 32%.
FISCAL 1996 COMPARED WITH FISCAL 1995
Net revenues for fiscal 1996 increased by $4.1 million (11%) to $41.2
million, from $37.1 million in fiscal 1995. This increase resulted primarily
from increased shipments of sub-assemblies for system expansion, increased
revenues from customer support and training, and growth in international
shipments, offset by a decline in increased revenues derived from the Company's
VCO 80 series product line resulting from a reduction in average unit sales
prices. International revenues in fiscal 1996 were $13.2 million, or 32% of net
revenues, compared to $3.6 million, or 10% of net revenues, in fiscal 1995. The
number of new customers for the year increased by twenty-two. The Company does
not believe that the percentage increase in net revenues for the year ended
March 31, 1996 is necessarily indicative of the percentage increase in net
revenues to be generated for any subsequent period.
Gross profit increased $1.9 million (8%) to $26.7 million for fiscal 1996,
compared to $24.8 million in fiscal 1995. Gross margin decreased to 65% in
fiscal 1996 from 67% in fiscal 1995. The decrease in gross margin in fiscal 1996
resulted primarily from increased discounts associated with the 35% growth in
the higher discounted indirect revenue channels, a decline in average system
selling prices and the increase of service revenue as a percent of total
revenues at lower gross margins. The Company does not believe the current rates
of gross margins are necessarily indicative of future gross margins which may be
affected by the level of net revenues, customer mix,
11
<PAGE> 12
cost of components and discounts granted to high volume purchases, and
competitive activity. A reclassification of a portion of customer service and
research and development operating expenses to cost of revenues are reflected in
these results for fiscal years ended March 31, 1996 and 1995. (See note 1 of the
Notes to Consolidated Financial Statements.)
Research and development expenses in fiscal 1996 increased by $3.2 million
(56%) to $9.1 million compared with $5.9 million in fiscal 1995. As a percentage
of net revenues, research and development expenses increased to 22% in fiscal
1996 as compared with 16% in fiscal 1995. The increase in fiscal 1996 was
primarily the result of the expansion of the Company's software engineering
staff, increased utilization of contract engineering resources and increased
country certification costs associated with international shipments and material
acquisitions for the fabrication of prototype units of new products. The
Company's increased spending for research and development was focused towards
providing additional functionality in terms of integrated SS7, network
management, scalability, certification and subrate switching. The Company
believes that the present level of expenditures for research and development
will continue through the next fiscal year. During fiscal 1996 and 1995,
$188,000 and $235,000 was received, respectively, from customer sponsored
development projects and recorded as a reduction to the related research and
development expenses.
Selling, general and administrative expenses increased by $1.0 million (8%)
to $13.0 million in fiscal 1996 compared with $12.0 million in fiscal 1995. This
increase was primarily attributable to expansion of the Company's direct sales
and support organization, higher levels of sales commissions associated with
increased revenues, increased professional services costs and costs related to
the Company's United Kingdom and Singapore operations, each of which operated
with additional staffing levels in fiscal 1996. As a percentage of net revenues,
selling, general and administrative expenses remained constant at 32%.
Operating income decreased by $2.3 million to $4.6 million, or 11% of net
revenues in fiscal 1996, compared to $6.9 million, or 19% of net revenues in
fiscal 1995. The decrease in operating income as a percentage of net revenues
was primarily the result of lower gross margins and higher spending for research
and development.
Net interest income of $1.5 million in fiscal 1996 was approximately equal
with fiscal 1995.
The Company's effective tax rate in fiscal 1996 was 38% compared with 36%
in fiscal 1995.
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 1997, the Company had $32.3 million in cash and cash
equivalents and current and non-current investments. The Company's non-current
investments were $18.7 million and $20.8 million at March 31, 1997 and 1996,
respectively. Non-current investments decreased to 33% of total assets at March
31, 1997 compared to 36% at March 31, 1996, primarily as a result of the
conversion of a portion of non-current investments to cash and cash equivalents
to facilitate the planned repurchase of shares of the Company's common stock.
The Company currently does not anticipate that it will be required to sell a
substantial percentage of its non-current investments prior to maturity. The
ratio of current assets to current liabilities was 3.3:1 at March 31, 1997
compared to 4.2:1 at March 31, 1996, principally as a result of an increase in
deferred revenue related to the sale of long term product service contracts.
The Company maintains an unsecured line of credit in the amount of $6.0
million with a bank. At March 31, 1997, no borrowings were outstanding under
this line. Unless renewed, the line will expire in September 1997. This line
bears interest at the bank's prime interest rate per annum (8.50% at March 31,
1997).
The Company does not consider the impact of inflation on its business
activities to have been significant to date.
In fiscal 1997, purchases of property and equipment totaled approximately
$2.9 million. The Company expects that its capital expenditures, including
leasehold improvements, will continue to increase. At March 31, 1997, there were
no material commitments for capital expenditures.
12
<PAGE> 13
Purchase commitments to suppliers of the Company were approximately $9.7
million and $6.5 million at March 31, 1997 and 1996, respectively.
On December 16, 1996, the Board of Directors authorized the repurchase of
an additional 500,000 shares of the Company's Common Stock as an extension of a
program initially authorized by the Board of Directors on July 21, 1994, which
at that time authorized the repurchase of up to 500,000 shares of the Company's
Common Stock. During the twelve month period ended March 31, 1997, the Company
repurchased 572,500 shares at an average cost of $11.10. Since the original
repurchase authorization on July 21, 1994, a total of 893,500 shares have been
repurchased at an average cost of $13.15 per share. During fiscal 1996 and 1997,
the Company reissued 15,339 and 20,575 shares, respectively, at an average price
of $12.61 and $10.71, respectively, related to purchases under the Company's
Employee Stock Purchase Plan. The Company may repurchase additional shares of
its stock depending on market conditions, price per share and other factors.
The Company believes that its current cash equivalents, together with funds
expected to be generated from operations, will be sufficient to finance the
Company's operations through at least the fiscal year ending March 31, 1998.
CERTAIN FACTORS THAT MAY AFFECT RESULTS
The statements contained in this Report are not purely historical are
forward-looking statements within the meaning of Section 27A of the Securities
Act of 1933 and Section 21E of the Securities Exchange Act of 1934, including
statements regarding the Company's expectations, hopes, intentions or strategies
regarding the future. Forward-looking statements include, among others:
statements regarding future product revenue levels; statements regarding future
international sales; statements regarding future gross profit levels: statements
regarding the level of future selling, general and administrative, research and
development expenses; statements regarding product development, introduction and
marketing; and statements regarding the sufficiency of the Company's existing
cash and available-for-sale securities to meet future operating cash
requirements. All forward-looking statements included in this document are based
on information available to the Company on the date hereof, and the Company
assumes no obligation to update any such forward-looking statements. It is
important to note that the Company's actual results could differ materially from
those in such forward-looking statements.
The market for telecommunication switches is based upon sophisticated
technologies and is subject to rapid technological change, new product
introductions and a multiplicity of current and evolving standards. Products
marketed by certain competitors of the Company may have design and functionality
capabilities similar to and/or in certain respects, more advanced than the
Company's products. There can be no assurance that the Company will be able to
compete successfully in the future against existing or new competitors or that
the Company's operating results will not be adversely affected by increased
price competition and technological factors. The Company believes that to remain
competitive, it depends on a variety of factors, including product selection,
successful and timely completion of product development and its ability to offer
products at competitive prices.
Some additional factors that could cause actual results to differ
materially are set forth below.
* The Company has recently announced agreements in principle with
Dialogic, Inc. and Junction, Inc. which it anticipates will result in
the creation of future products. The Company anticipates that the
expenses associated with this developmental activity will be partially
funded from its fiscal 1998 budget; the balance will be charged to
operating expenses. There can be no assurance that this relationship
will result in the development of salable product(s) which will be
beneficial to the future of the Company or that products produced by
this relationship will be developed in a cost effective manner and be
available for sale within the time frame required.
* The Company is dependent upon sole source suppliers for certain key
components used in its products. The Company purchases these sole
source components pursuant to purchase orders placed from
time-to-time. No assurance can be given that sole source suppliers
will devote the resources necessary to support the enhancement or
continued availability of such components or that any such supplier
will not encounter financial or operational difficulties. In addition,
in certain instances, components required for certain sub-assemblies
used in the Company's products are no longer being manufactured. The
Company has
13
<PAGE> 14
historically been able to secure such components by utilizing its
network of suppliers. However, the Company is redesigning such
sub-assemblies in order to eliminate production interruptions that
could occur if such components cannot be acquired. The Company is
actively seeking alternative solutions to address potentially serious
delays or shortages from its major component supplier. If delays or
shortages occur and the Company is unable to effect alternative supply
arrangements, its business and results of operations could be
materially adversely affected.
* A variety of factors could influence the level of the Company's net
revenues in a particular quarter, including general economic
conditions in the telecommunications switching industry, the timing of
significant orders, shipment delays, the introduction of new products
by the Company, the introduction of new products by the Company's
competitors, acquisitions by the Company, patterns of capital spending
by customers and other factors, many of which are beyond the Company's
control. Since a substantial portion of the expenses of the Company do
not vary relative to sales levels, if net revenues in a particular
quarter do not meet expectations, it could have a material adverse
effect on the Company's results of operations.
* The Company's gross margin has declined in recent periods and may
continue to decline as a result of potential sales price reductions
and increased use of indirect distribution channels. Gross margins are
also affected by other factors such as changes in the cost of
materials, production and quality considerations, and the timing of
new product introductions. The Company from time-to-time adds
functionality and features that add cost to its products, and the
Company's gross margins will be adversely affected to the extent the
Company is not able to increase the price of such systems to offset
such increased costs.
* The Company's future results of operation and financial condition will
depend, in part, on its ability to obtain and maintain patent
protection for its products, to preserve its trade secrets and to
operate without infringing on proprietary rights of third parties.
There can be no assurance that the Company will be able to obtain
and/or adequately protect the intellectual property required for it to
compete effectively.
* The Company's ability to develop marketable products and maintain a
competitive position in light of continuing technological developments
will depend, in large part, on its ability to attract and retain
highly qualified management, technical and sales and marketing
personnel. Competition for the services of these key employees is
intense.
* The Company's international business is subject to a number of
inherent risks, including the challenges of building and managing
foreign operations, unique product requirements, fluctuations in the
value of foreign currencies, import/export duties, and unexpected
regulatory, economic or political changes in foreign markets.
Because of these and other factors, past financial performance should not
be considered an indicator of future performance.
14
<PAGE> 15
Item 8 - Financial Statements and Supplementary Data
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE(S)
Report of Independent Accountants 16
Consolidated Balance Sheets as of March 31, 1997 and 1996 17
Consolidated Statements of Income for the Years Ended 18
March 31, 1997, 1996 and 1995
Consolidated Statements of Changes in Stockholders' Equity 19
for the Years Ended March 31, 1997, 1996 and 1995
Consolidated Statements of Cash Flows for the Years Ended 20
March 31, 1997, 1996 and 1995
Notes to Consolidated Financial Statements 21 - 31
15
<PAGE> 16
REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholders and Board of Directors of Summa Four, Inc.:
We have audited the consolidated financial statements and the financial
statement schedule of Summa Four, Inc. listed in Items 14a (1) and (2) of this
Form 10-K. These financial statements and the financial statement schedule are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements and the financial statement schedule
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Summa Four,
Inc. as of March 31, 1997 and 1996, and the consolidated results of its
operations and its cash flows for each of the three years in the period ended
March 31, 1997, in conformity with generally accepted accounting principles. In
addition, in our opinion, the financial statement schedule referred to above,
when considered in relation to the basic financial statements taken as a whole,
presents fairly, in all material respects, the information required to be
included therein.
COOPERS & LYBRAND L.L.P.
Boston, Massachusetts
May 5, 1997
16
<PAGE> 17
<TABLE>
SUMMA FOUR, INC.
CONSOLIDATED BALANCE SHEETS
MARCH 31, 1997 AND 1996
(In thousands, except per share data)
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 6,169 $ 4,681
Investments - current 7,472 12,284
Accounts receivable, net of allowance
for doubtful accounts of $237 at March 31, 1997 and
$480 at March 31, 1996 10,278 9,466
Inventory, net 5,069 3,352
Deferred income taxes 2,288 1,702
Prepaid and other current assets 1,812 1,075
-------- -------
Total current assets 33,088 32,560
Investments - non-current 18,686 20,758
Property and equipment, net 4,265 3,755
Deferred income taxes 226 286
Other assets 188 340
-------- -------
Total assets $ 56,453 $57,699
======== =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 2,333 $ 1,775
Accrued payroll and related expenses 1,016 957
Other accrued expenses 3,704 3,247
Deferred revenues 3,075 1,720
-------- -------
Total current liabilities 10,128 7,699
Other long-term liabilities 676 863
Commitments and contingencies (Note 8)
Stockholders' equity:
Preferred stock, $.01 par value; authorized 1,000,000 shares
- no shares issued
Common stock, $.01 par value; authorized 20,000,000 shares;
issued 6,411,762 shares at March 31, 1997 and
6,381,437 at March 31, 1996 64 64
Additional paid-in capital 43,662 43,592
Retained earnings 13,149 11,301
Cumulative translation adjustment -- (125)
Unrealized gains (losses) on investments 43 (539)
Common stock in treasury, 852,431 shares at March 31, 1997
and 300,506 shares at March 31, 1996, at cost (11,269) (5,156)
-------- -------
Total stockholders' equity 45,649 49,137
-------- -------
Total liabilities and stockholders' equity $ 56,453 $57,699
======== =======
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
17
<PAGE> 18
<TABLE>
SUMMA FOUR, INC.
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED MARCH 31, 1997, 1996 AND 1995
(In thousands, except per share data)
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Net revenues $44,316 $41,193 $37,136
Cost of revenues(*) 18,144 14,467 12,367
------- ------- -------
Gross profit 26,172 26,726 24,769
Operating expenses(*):
Selling, general and administrative 14,196 13,023 11,968
Research and development 10,478 9,131 5,863
------- ------- -------
Total operating expenses 24,674 22,154 17,831
------- ------- -------
Operating income 1,498 4,572 6,938
Other income:
Interest income, net 1,219 1,502 1,540
------- ------- -------
Income before income taxes 2,717 6,074 8,478
Provision for income taxes 869 2,309 3,055
------- ------- -------
Net income $ 1,848 $ 3,765 $ 5,423
======= ======= =======
Net income per share $ .30 $ .59 $ .82
Weighted average common and common equivalent
shares outstanding 6,117 6,388 6,605
</TABLE>
(*) Reflects the reclassification of certain expenses. See note 1
(Reclassification)
The accompanying notes are an integral part of the
consolidated financial statements.
18
<PAGE> 19
<TABLE>
SUMMA FOUR, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
YEARS ENDED MARCH 31, 1997, 1996 AND 1995
(In thousands, except share data)
<CAPTION>
Common Stock Additional Cumulative Unrealized
------------------ Paid-In Retained Translation Gains (Losses) Treasury Stockholders'
Shares Amount Capital Earnings Adjustment on Investments Stock Equity
------ ------ ------- -------- ---------- -------------- ----- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, March 31, 1994 6,122,987 $ 61 $39,266 $ 2,113 $ (94) $ (662) $40,684
Issuance of common stock
under stock option and
purchase plans 211,450 2 937 $ 60 999
Income tax benefit from
stock option plans 2,520 2,520
Foreign currency translation (46) (46)
Purchase of treasury stock (1,243) (1,243)
Net income 5,423 5,423
Unrealized losses on
investments (304) (304)
--------- ---- ------- ------- ----- ------ -------- -------
Balance, March 31, 1995 6,334,437 $ 63 $42,723 $ 7,536 $(140) $ (966) $ (1,183) $48,033
========= ==== ======= ======= ===== ====== ======== =======
Issuance of common stock
under stock option and
purchase plans 47,000 1 410 176 587
Income tax benefit from
stock option plans 459 459
Foreign currency translation 15 15
Purchase of treasury stock (4,149) (4,149)
Net income 3,765 3,765
Unrealized gains on
investments 427 427
--------- ---- ------- ------- ----- ------ -------- -------
Balance, March 31, 1996 6,381,437 $ 64 $43,592 $11,301 $(125) $ (539) $ (5,156) $49,137
========= ==== ======= ======= ===== ====== ======== =======
Issuance of common stock
under stock option and
purchase plans 30,325 70 246 316
Foreign currency translation 125 125
Purchase of treasury stock (6,359) (6,359)
Net income 1,848 1,848
Unrealized gains on
investments 582 582
--------- ---- ------- ------- ----- ------ -------- -------
Balance, March 31, 1997 6,411,762 $ 64 $43,662 $13,149 $ -- $ 43 $(11,269) $45,649
========= ==== ======= ======= ===== ====== ======== =======
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
19
<PAGE> 20
SUMMA FOUR, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended March 31, 1997, 1996 and 1995
(In thousands)
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 1,848 $ 3,765 $ 5,423
------- ------- -------
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 2,429 1,951 1,355
Deferred income taxes (526) (223) (1,132)
Tax benefit from stock option plans (18) 459 2,520
Provision for doubtful accounts 150 274 90
Provision for excess and obsolete inventory 112 257 158
Changes in operating assets and liabilities:
Accounts receivable (837) (1,174) (3,300)
Inventory (1,829) (1,243) (305)
Prepaid and other current assets (737) (293) (67)
Other assets 152 (269) (21)
Accounts payable 558 (432) 457
Accrued payroll and related expenses 59 9 92
Deferred revenues 1,202 613 1,042
Other accrued expenses and other liabilities 454 1,075 (400)
------- ------- -------
Total adjustments 1,169 1,004 489
------- ------- -------
Net cash provided by operating activities 3,017 4,769 5,912
------- ------- -------
Cash flows from investing activities:
Purchases of property and equipment (2,939) (2,469) (2,111)
Sales (Purchases) of investments, net 7,466 (1,108) 752
------- ------- -------
Net cash provided by (used in)
investing activities 4,527 (3,577) (1,359)
------- ------- -------
Cash flows from financing activities:
Proceeds from the sale of stock under stock
option plans 334 587 999
Purchase of treasury stock (6,359) (4,149) (1,243)
Principal payments under capital lease obligations (31) (19) --
------- ------- -------
Net cash (used in) financing activities (6,056) (3,581) (244)
Net increase (decrease) in cash and cash equivalents 1,488 (2,389) 4,309
Cash and cash equivalents, beginning of period 4,681 7,070 2,761
------- ------- -------
Cash and cash equivalents, end of period $ 6,169 $ 4,681 $ 7,070
======= ======= =======
Supplemental disclosure of cash flow information
Cash paid for interest $ 19 $ 7 $ 24
Cash paid for income taxes $ 791 $ 984 $ 2,625
Supplemental disclosure of non-cash investing
and financing activities:
Equipment acquired under capital lease obligations $ -- $ 174 $ --
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
20
<PAGE> 21
SUMMA FOUR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies:
Basis of Presentation
The Company is active in only one business segment: developing, marketing,
manufacturing and supporting its open, programmable switches that enable
telecommunications services providers to build and deploy advanced wireline and
wireless services. The consolidated financial statements include the accounts of
the Company and its wholly-owned subsidiaries. All intercompany transactions
have been eliminated.
Cash Equivalents
Cash equivalents consist of certificates of deposit and money market funds
which have maturities of 90 days or less when acquired, and are carried at cost
which approximates fair value. At March 31, 1997 and 1996, the Company had
approximately $5,487,000 and $3,260,000, respectively, maintained at one
institution.
Inventory
Inventory is stated at the lower of cost (first-in, first-out) or market.
Provision is made for excess or potentially obsolete inventory and other
inventory valuation concerns in the period such matters are identified.
Property and Equipment
Property and equipment are stated at cost. Depreciation is provided for on
the straight-line method for financial reporting purposes and on accelerated
methods for income tax purposes over the estimated useful lives of the assets.
The estimated useful lives of property and equipment for financial reporting
purposes are as follows: office furniture and equipment, 3-5 years; and
machinery and equipment, 2-10 years. Leasehold improvements are amortized over
the shorter of their estimated useful life or the lease term.
Expenditures for additions, renewals and betterments of property and
equipment are capitalized. Expenditures for maintenance and repairs are expensed
as incurred. Upon retirement or sale, the cost of the asset disposed of and the
related accumulated depreciation are removed from the account and any resulting
gain or loss is credited or charged to operations.
Research and Development
Research and development costs are expensed as incurred. The Company
evaluates Statement of Financial Accounting Standards No. 86, "Accounting for
the Costs of Computer Software to be Sold, Leased, or Otherwise Marketed", in
accounting for product development expenditures. To date, costs eligible for
capitalization have been immaterial and have not been capitalized.
Revenue Recognition
Revenue from product sales is recognized upon shipment. Revenue under
maintenance agreements is recognized ratably over the life of the related
agreements. Deferred revenue consists of customer deposits and amounts received
for extended maintenance agreements. For the years ended March 31, 1996 and
1995, payments of $188,000 and $235,000, respectively, were received for
customer sponsored development projects and recorded as a reduction to related
research and development expenses. There were no such receipts for the year
ended March 31, 1997.
21
<PAGE> 22
Income Taxes
The Company utilizes the liability method of accounting for income taxes as
set forth in Statement of Financial Accounting Standards No. 109 ("SFAS No.
109"), "Accounting for Income Taxes". SFAS No. 109 is an asset and liability
approach that requires the recognition of deferred tax assets and liabilities
for the expected future tax consequences of events that have been recognized in
the Company's financial statements or tax returns. The measurement of deferred
tax assets is reduced by a valuation allowance if, based upon weighted available
evidence, it is more likely than not that some or all of the deferred tax assets
will not be realized.
Product Warranty
The Company generally provides a twelve month warranty on its hardware and
software products. Anticipated warranty costs are accrued upon shipment and are
charged to cost of sales.
Net Income per Share
Net income per share is computed based on the weighted average number of
common and common equivalent shares outstanding. The common equivalent shares
related to stock options were calculated using the treasury stock method. Fully
diluted earnings per share did not differ materially from primary earnings per
share.
Translation of Non-U.S. Currencies
Assets and liabilities of non-U.S. subsidiaries, which are denominated in
currencies other than the U.S. dollar, are remeasured into U.S. dollars at rates
of exchange in effect at the end of the fiscal year except nonmonetary assets
and liabilities which are remeasured using historical exchange rates. Revenue
and expense amounts are remeasured using an average of exchange rates in effect
during the year, except those amounts related to nonmonetary assets and
liabilities, which are remeasured at historical exchange rates. Net realized and
unrealized gains and losses resulting from currency remeasurement are included
in operations.
Reclassification
A portion of customer service ($650,000 and $577,000, respectively) and
research and development ($230,000 and $0, respectively) expenses were
reclassified to cost of revenues for the fiscal years ended March 31, 1996 and
1995. In addition, corporate quality expenses of $214,000 and $181,000,
respectively, were reclassified from cost of revenues to selling, general and
administrative expenses. These reclassifications had no effect on operating or
net income.
Concentration of Credit Risk
Financial instruments which potentially subject the Company to
concentrations of credit risk consist primarily of cash and cash equivalents,
investments and accounts receivable. The Company places its cash in what it
believes are credit-worthy financial institutions. The Company's investments
consist primarily of obligations of the U.S. Government, States and political
sub-divisions.
Credit risk with respect to trade receivables is concentrated because the
Company sells to a limited number of large customers. The Company's customer
base includes telephone companies in North and South America, Asia, and Europe
and a number of smaller applications developers and systems integrators.
Although the Company is directly affected by the condition of the
telecommunication industry, management does not believe that significant credit
risk currently exists and monitors this risk on a regular basis. The carrying
amount of the trade receivables approximates fair value and any credit losses
have been within management's expectations.
Risks and Uncertainties
Certain components used in the Company's products are purchased from a
single or limited source, and certain technology used in the Company's products
is licensed from third parties. In addition, in certain instances, components
required for certain sub-assemblies used in the Company's products are no longer
being manufactured.
22
<PAGE> 23
The Company has historically been able to secure such components by utilizing
its network of suppliers, however, the Company is redesigning such
sub-assemblies in order to eliminate production interruption that could occur if
such components cannot be procured. The Company often obtains parts from only
one or limited sources, even where multiple sources are available, to maintain
quality control and strengthen the working relationship with these parties.
These purchases and licensing agreements are made under existing contracts or
purchase orders. However, the inability to develop alternative sources, if
required, due to the vendor's inability to deliver on schedule, or the
licensor's termination of certain licenses, could have a material adverse effect
on the Company's financial condition, results of operations, and / or cash
flows.
The Company's increasing international business is subject to a number of
inherent risks, including the challenges of building and managing foreign
operations, unique product requirements, fluctuations in the value of foreign
currencies, import/export duties, and unexpected regulatory, economic or
political changes in foreign markets.
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, the
disclosure of contingent assets and liabilities at the date of the financial
statements, and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Recent Pronouncement
In February 1997, Statement of Financial Accounting Standards No. 128
("SFAS No. 128"), "Earnings per Share", was issued. This Statement establishes
standards for computing and presenting earnings per share ("EPS"). This
Statement requires restatement of all prior-period EPS data presented upon
adoption. Summa Four is required to adopt SFAS No. 128 in the fourth quarter of
fiscal 1998 and has yet to determine the impact of the required disclosures.
2. Investments
The Company determines the appropriate classification of its debt and
equity securities at the time of purchase, and re-evaluates such designations as
of each balance sheet date. The Company has classified its debt and equity
securities as available-for-sale. These securities are carried at fair value
with the unrealized gains and losses reported in a separate component of
stockholders' equity. The amortized cost of debt securities is adjusted for the
amortization of premiums and the accretion of discounts to maturity. Such
amortization is included in interest income.
<TABLE>
A summary of available-for-sale securities at March 31, 1997 is as follows (in
thousands):
<CAPTION>
Unrealized Unrealized Estimated
Cost Gains Losses Fair Value
---- ----- ------ ----------
<S> <C> <C> <C> <C>
Obligations of U.S. Government
and Agencies $ 4,130 $(90) $ 4,040
Obligations of States and
political sub-divisions 21,776 $ 17 (34) 21,759
Other 209 150 -- 359
------- ---- ----- -------
Total $26,115 $167 $(124) $26,158
======= ==== ===== =======
</TABLE>
23
<PAGE> 24
<TABLE>
A summary of available-for-sale securities at March 31, 1996 is as follows (in
thousands):
<CAPTION>
Unrealized Unrealized Estimated
Cost Gains Losses Fair Value
---- ----- ------ ----------
<S> <C> <C> <C> <C>
Obligations of U.S. Government
and Agencies $14,222 $(535) $13,687
Obligations of States and
political sub-divisions 19,359 $25 (29) 9,355
------ --- ----- -------
$33,581 $25 $(564) $33,042
======= === ===== =======
</TABLE>
The realized gains and losses on sales of securities calculated on the
specific identification method were $20,251 and ($252,228) and $17,827 and
($37,269) in fiscal 1997 and 1996, respectively. The net adjustment to
unrealized gains (losses) on available-for-sale securities included as a
separate component of stockholders' equity totaled $43,356 and ($539,046) at
March 31, 1997 and 1996, respectively.
The amortized cost and estimated fair value of debt securities at March 31,
1997, by contractual maturity, are shown below (in thousands). Actual maturities
may differ from contractual maturities because the issuers of these securities
may have the right to prepay obligations without penalty.
<TABLE>
<CAPTION>
Estimated
Maturity Cost Fair Value
-------- ---- ----------
<S> <C> <C>
Due within one year $ 7,116 $ 7,113
Due between one through five years 18,790 18,686
------- -------
$25,906 $25,799
======= =======
</TABLE>
3. Inventory:
<TABLE>
Inventory at March 31, 1997 and 1996 consisted of the following (in
thousands):
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Raw materials $1,652 $1,106
Work-in-process 1,795 1,288
Finished goods 1,622 958
------ ------
$5,069 $3,352
====== ======
</TABLE>
4. Property and Equipment:
<TABLE>
Property and equipment at March 31, 1997 and 1996 consisted of the
following (in thousands):
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Machinery and equipment $ 7,573 $ 6,074
Office furniture and equipment 4,531 3,172
Leasehold improvements 427 362
------- -------
Total 12,531 9,608
Less: accumulated depreciation and amortization (8,266) (5,853)
------- -------
$ 4,265 $ 3,755
======= =======
</TABLE>
Property and equipment includes $174,000 of office equipment acquired under
capital leases in fiscal 1996 on which accumulated depreciation totaled $52,000
and $17,000 at March 31, 1997 and 1996 respectively. Depreciation and
amortization expense associated with property and equipment totaled
approximately $2,429,000, $1,951,000 and $1,355,000 for the years ended March
31, 1997, 1996 and 1995, respectively.
24
<PAGE> 25
5. Income Taxes:
The provision for income taxes includes federal, state and foreign income taxes
currently payable and those deferred because of temporary differences between
the financial statement and tax bases of assets and liabilities. The provision
for the years ended March 31, 1997, 1996 and 1995 was as follows (in thousands):
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Current
U.S. Federal $ 825 $ 1,972 $ 3,284
Non-U.S 369 147 99
State 200 413 804
------- ------- -------
$ 1,394 $ 2,532 $ 4,187
Deferred
U.S. Federal ($458) ($194) ($985)
Non-U.S -- -- --
State (67) (29) (147)
------- ------- -------
(525) (223) (1,132)
------- ------- -------
$ 869 $ 2,309 $ 3,055
======= ======= =======
</TABLE>
<TABLE>
The following is a reconciliation between the federal statutory rate and
the effective tax rate:
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Statutory income tax rate 34.0% 34.0% 34.0%
State income taxes, net of federal benefit 7.4 7.4 7.0
Tax effect of foreign activities 2.1 (0.7) 2.5
Disallowed meals and entertainment deductions 0.7 0.4 0.3
Tax-exempt interest income (9.7) (3.6) (2.7)
Change in valuation allowance (6.7) (2.4) (6.5)
Other 4.2 2.9 1.4
---- ---- ----
Effective tax rate 32.0% 38.0% 36.0%
==== ==== ====
</TABLE>
<TABLE>
The Company's deferred tax assets and liabilities and related valuation
allowance were as follows at March 31, 1997 and 1996, respectively (in
thousands):
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Current deferred tax assets (liabilities)
Deferred revenues $ 978 $ 385
Other allowances and reserves 780 796
Allowance for doubtful accounts 93 187
Warranty reserve 334 334
Depreciation 125 --
Unrealized gains (losses) on securities (22) 183
------- -------
Total current deferred tax assets 2,288 1,885
Valuation allowance -- (183)
------- -------
Net current deferred tax assets $ 2,288 $ 1,702
======= =======
Non-current deferred tax assets
Deferred revenues $ 226 $ 286
------- -------
Non-current deferred tax assets $ 226 $ 286
======= =======
</TABLE>
The Company had unrealized losses arising from SFAS No. 115 of approximately
($539,000) at March 31, 1996. The valuation allowance at March 31, 1996 related
to the unrealized capital losses for that year. No such allowance was recorded
at March 31, 1997.
25
<PAGE> 26
6. Line Of Credit
As of March 31, 1997, the Company had a $6,000,000 unsecured line of credit
with a bank. Unless renewed, the line expires in September 1997. This line bears
interest at the bank's prime interest rate per annum (8.50% at March 31, 1997)
and the bank charges a 1/8% per annum commitment fee. There were no borrowings
under this line at March 31, 1997 and 1996. The bank agreement contains
covenants, including requirements as to the maintenance of certain levels of
working capital and net worth, and prohibitions on the payment of cash
dividends.
7. Stockholders' Equity
Incentive Stock Option Plans
The Company has incentive stock option plans (1995 Stock Plan and the 1993
Stock Incentive Plan) which provide for the granting of options to purchase an
aggregate of 850,000 shares of the Company's Common Stock. While the majority of
the options granted are incentive stock options, the plans allow for the
granting of non-qualified stock options. Under these plans, shares of the
Company's Common Stock has been reserved for the issuance of a variety of
awards, including stock options, appreciation rights, and restricted and
unrestricted stock grants to employees, officers, directors, consultants, and
advisors who are expected to contribute to the Company's future growth and
success. Under all of the Company's stock option plans, options expire ten years
from date of grant.
Under these plans, options are granted at the fair market value of the
stock on the date of grant (110% of fair market value in certain cases) and are
conditional upon continued employment with the Company. The options generally
become exercisable in increments of 20% per year over five years.
As of March 31, 1997, incentive and non-qualified stock options to purchase
497,965 shares and 100,293 shares, respectively, were outstanding under these
plans. Of these outstanding options, incentive stock options to purchase 102,351
shares and non-qualified stock options to purchase 4,475 shares were
exercisable.
In addition to these incentive stock option plans, previous plans provide
for the granting of options to purchase an aggregate of 787,500 shares of the
Company's Common Stock. As of March 31, 1997, options to purchase 161,375 shares
were outstanding, of which 139,335 were exercisable.
Non-Qualified Stock Option Plans
The Company has a non-qualified stock option plan which provides for the
granting of options to purchase 31,500 options to purchase shares of the
Company's Common Stock. As of March 31, 1997, options to purchase 31,500 shares
were outstanding, all of which were exercisable.
The 1993 Director Stock Option Plan authorized a maximum of 63,000 shares
of the Company's Common Stock to be issued. Under this plan, each director who
was not an employee of the Company receives upon his initial election an option
to purchase 7,000 shares of stock at an exercise price equal to the fair market
value of the stock on the date of grant. Such options vest immediately with
respect to twenty percent of such shares, with the remainder vesting in four
equal annual installments commencing one year after the date of grant.
In addition, on the date of each Annual Meeting, each director receives an
option, which vested immediately, to purchase 2,500 shares of the Company's
stock at an exercise price equal to the fair market value at the date of the
Annual Meeting. As of March 31, 1997, options to purchase 48,650 shares were
outstanding, of which 36,050 were exercisable.
26
<PAGE> 27
Stock Purchase Plan
Under the Employee Stock Purchase Plan, employees of the Company are
eligible to participate in semi-annual plan offerings in which payroll
deductions may be used to purchase shares of Common Stock. The purchase price of
the shares is the lower of 85% of the fair market value of the stock on the day
the offering commences or 85% of the fair market value of the stock on the day
the offering terminates. The Company has reserved 175,000 shares of stock under
this Plan. For the year ended March 31, 1997, employees purchased 20,575 shares
at an average price of $10.71; for the year ended March 31, 1996, employees
purchased 15,339 shares at a price of $12.61. For the year ended March 1995,
employees purchased 5,155 shares at a price of $14.34.
Stock-Based Compensation
In October 1995, Statement of Financial Accounting Standards No. 123 ("SFAS
No. 123"), "Accounting for Stock-Based Compensation", was issued. SFAS No. 123
is effective for periods beginning after December 15, 1995. The Company has
adopted the disclosure only alternative available under the provisions of SFAS
No. 123 in fiscal 1997. Had compensation cost for the Company's stock-based
compensation plans been determined based on the fair value at the grant dates as
calculated in accordance with SFAS No. 123, the Company's net income and
earnings per share for the years ended March 31, 1997 and 1996 would have been
reduced to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
1997 1996
---- ----
Net Income Earnings per Share Net Income Earnings per Share
---------- ------------------ ---------- ------------------
(In thousands) (In thousands)
<S> <C> <C> <C> <C>
As reported $1,848 $.30 $3,765 $.59
Pro forma $1,108 $.18 $3,005 $.47
</TABLE>
The fair value of each stock option is estimated on the date of grant using
the Black-Scholes option-pricing model with the following weighted average
assumptions: an expected option life of six years, expected volatility of 65%
and a weighted-average risk-free interest rate of 6.26%. The Company has not
paid dividends nor does it expect to pay dividends in the near future. The
weighted average fair value of stock options granted for the years ended March
31, 1997 and 1996 was $6.93 and $12.22, respectively.
<TABLE>
A summary of the Company's stock option plan activity since April 1, 1994
is presented below:
<CAPTION>
Number Weighted Average
of Shares Exercise Price
--------- --------------
<S> <C> <C>
Outstanding at March 31, 1994 698,760 $ 5.75
--------
Granted 231,795 $22.51
Canceled (226,005) $ 6.93
Exercised (211,450) $ 4.38
--------
Options outstanding at March 31, 1995 493,100 $11.27
--------
Granted 313,585 $19.47
Canceled (55,605) $21.72
Exercised (47,000) $ 7.04
--------
Options outstanding at March 31, 1996 704,080 $14.38
--------
Granted 344,400 $10.73
Canceled (178,012) $21.59
Exercised (30,325) $ 3.76
--------
Options outstanding March 31, 1997 840,143 $11.74
========
</TABLE>
27
<PAGE> 28
<TABLE>
The following table summarizes information about stock options outstanding at
March 31, 1997:
<CAPTION>
Options Outstanding Options Exercisable
------------------- -------------------
Weighted-Average
Range of Number Remaining Weighted-Average Number Weighted-Average
Exercise Prices Outstanding Contractual Life Exercise-Price Exercisable Exercise Price
--------------- ----------- ---------------- -------------- ----------- --------------
<S> <C> <C> <C> <C> <C>
$2.00-$4.00 122,885 1.7 years $ 2.57 118,335 $ 2.57
$4.00-$5.00 70,350 6.1 years $ 4.57 52,500 $ 4.57
$8.00-$10.00 210,750 9.5 years $ 8.89 9,800 $ 9.12
$10.00-$15.00 281,978 8.7 years $12.57 72,554 $12.79
$15.01-$23.00 16,400 8.5 years $17.25 4,420 $17.47
$23.01-$35.00 137,780 7.7 years $25.65 56,102 $25.45
------- -------
840,143 313,711
======= =======
</TABLE>
Shareholders Rights Plan
On February 9, 1995, the Board of Directors voted to adopt a Shareholders
Rights Plan, applicable to shareholders of record on March 10, 1995. In
connection with the adoption of this Plan, the Company declared a dividend
distribution of one Right for each outstanding share of the Company's
outstanding stock. Each Right entitles the registered holder to purchase from
the Company a unit consisting of one one-thousandth of a share of Series A
Junior Participating Stock, $.01 par value (the "Preferred Stock"). The Rights
are not exercisable until the Distribution Date and will expire at the close of
business on February 8, 2005, unless earlier redeemed or exchanged by the
Company. The primary purpose of the plan is to ensure that all shareholders of
the Company receive fair treatment in the event of an unsolicited offer to
acquire control of the Company.
8. Commitments and Contingencies:
The Company leases its facilities and certain equipment under operating
lease agreements which expire at various dates through fiscal year 2001. The
agreement for the New Hampshire headquarters will terminate on August 31, 1998.
Rental expense amounted to approximately $814,000, $675,000 and $570,000 in
fiscal 1997, 1996 and 1995, respectively.
<TABLE>
Future minimum annual commitments under such leases are as follows (in
thousands):
<CAPTION>
Years ended March 31, Amount
--------------------- ------
<S> <C>
1998 $ 901
1999 385
------
$1,286
======
</TABLE>
Purchase commitments to suppliers of the Company were approximately $9.7
million and $6.5 million at March 31, 1997 and 1996, respectively.
On August 2, 1995, Claircom Communications Group, Inc. ("Claircom") brought
an action against the Company in the King County (Washington) Superior Court
alleging breach of contract, breach of warranty and various related claims and
seeking an accounting and damages arising from the joint development of a cabin
telecommunications unit (CTU) to be initially installed for passenger use in
commercial aircraft. On October 11, 1995, the Company filed an answer in the
Washington action denying Claircom's allegations and asserted a Counterclaim.
The Company also brought an action against Claircom, in the Hillsborough County
(New Hampshire) Superior Court on September 12, 1995, seeking payment of
royalties, protection of its trade secrets and damages for breach of contract
under certain New Hampshire statutes. The Company also sought a preliminary
injunction against Claircom. The motion for preliminary injunction was heard on
September 26, 1995, together with Claircom's Motion to Dismiss or Stay the New
Hampshire action. On October 12, 1995 the New Hampshire
28
<PAGE> 29
court denied the Company's motion for preliminary injunction and Claircom's
motion to dismiss or stay. On October 30, 1995, the Washington court granted the
Company's motion to stay the Washington action. Claircom's motions to reconsider
the orders of the New Hampshire and the Washington courts have both been denied.
Claircom's recently amended its counterclaims to add claims for fraudulent
inducement, intentional misrepresentation and a claim under the New Hampshire
Consumer Protection Act. The Company is preparing a response denying the new
claims and is considering a motion to dismiss certain counts. The parties are
moving forward in the New Hampshire action and while the discovery phase
continues, a May 1998 trial date has been set. No estimate of the probable
outcome of this litigation can be made at this time. However, an unfavorable
outcome could have a materially adverse effect on the Company's financial
condition, results of operations, and/or cash flows.
9. 401(k) Profit Sharing Plan:
The Company maintains a qualified 401(k) profit sharing plan. The plan
covers substantially all employees who have satisfied a one month service
requirement and have attained the age of 21. The Company has a guaranteed
interest fund, an equity fund, an international fund, a growth fund and a
balanced fund available under the Plan. Vesting in the Company contributions to
the Plan is based on a five-year schedule (20% per year).
Employee contributions may range from 1-15% of compensation with a
discretionary matching Company contribution not to exceed 6% of compensation.
The Company contributed approximately $167,000, $142,000 and $69,000 relating to
this plan during fiscal 1997, 1996 and 1995, respectively. The Company, at its
discretion, may also make an optional contribution for any plan year although no
such contribution has been made to date.
10. Geographic Data and Major Customers:
A significant portion of the Company's revenues are derived from a limited
number of customers. Approximately 29% of the Company's revenues for the fiscal
year ended March 31, 1997, were from three customers accounting for 12%, 9% and
8% of total revenues. Approximately 32% of the Company's revenues for the fiscal
year ended March 31, 1996 were from three customers accounting for 14%, 9% and
9% of total revenues. Approximately 45% of the Company's revenues for the fiscal
year ended March 31, 1995 were from three customers accounting for 17%, 15% and
13% of total revenues. From time to time a significant portion of the Company's
accounts receivable balance will be with these or other major customers. At
March 31, 1997, approximately $2,064,000 was outstanding from two customers and
at March 31, 1996, approximately $3,704,000 was outstanding from two customers.
Consideration is given to the financial position of these customers when
determining the appropriate allowance for doubtful accounts. The Company's
standard payment terms are net 30 days. Generally, all customers are subject to
these terms. At the Company's discretion, in order to accommodate a customer's
request, the Company has selectively extended payment terms. At March 31, 1997,
the Company had approximately $5.4 million of accounts receivable with other
than standard payment terms.
The Company has two foreign subsidiaries which sell the Company's products
in their respective geographic areas. Revenues are reflected in the geographic
areas from which the sales are made. Revenue generated by, and the identifiable
assets of, foreign operations were less than 10% of consolidated revenues and
assets, respectively, for the fiscal year ended March 31, 1995. Financial
information, summarized by geographic area, greater than 10%, is as follows (in
thousands):
<TABLE>
<CAPTION>
United
States Europe Asia Pacific Eliminations Consolidated
------ ------ ------------ ------------ ------------
Year ended March 31, 1997
- -------------------------
<S> <C> <C> <C> <C> <C>
Total revenues $38,060 $5,539 $ 717 $44,316
* Unaffiliated 3,040 -- 1,677 $(4,717) --
* Inter-Company transfers ------- ------ ------ ------- -------
Total $41,100 $5,539 $2,394 $(4,717) $44,316
Income from operations $ 1,966 $ 699 $ 121 $ (69) $ 2,717
Identifiable assets $54,616 $3,225 $ 255 $(1,643) $56,453
</TABLE>
29
<PAGE> 30
<TABLE>
<CAPTION>
United
States Europe Asia Pacific Eliminations Consolidated
------ ------ ------------ ------------ ------------
Year ended March 31, 1996
- -------------------------
<S> <C> <C> <C> <C> <C>
Total revenues
* Unaffiliated $33,609 $5,792 $1,792 $41,193
* Inter-Company transfers 3,667 -- -- $(3,667) --
------- ------ ------ ------- -------
Total $37,276 $5,792 $1,792 $(3,667) $41,193
Income from operations $ 5,669 $ 289 $ 90 $ 26 $ 6,074
Identifiable assets $56,977 $2,577 $ 233 $(2,088) $57,699
</TABLE>
The Company's operations are structured to achieve consolidated objectives.
As a result, significant interdependencies and overlaps exist among the
Company's operating entities. Accordingly, the revenues, operating income and
identifiable assets shown for each geographic area may not be indicative of the
amounts which would have been reported if the operating entities were
independent of one another.
The United States inter-company transfers represent shipments of systems to
international subsidiaries. The inter-company transfers are made at prices which
approximate cost plus an appropriate markup, and are eliminated from
consolidated revenues.
Corporate assets, consisting of investments, totaled approximately $26.2
million and $33.0 million at March 31, 1997 and 1996 respectively, and are
included in the identifiable assets in the United States where the Company's
headquarters are located.
<TABLE>
Export sales to unaffiliated customers from the Company's United States
operations were as follows (in thousands):
<CAPTION>
Years ended March 31, 1997 1996 1995
- --------------------- ---- ---- ----
<S> <C> <C> <C>
Asia/Pacific $ 8,343 $3,453 $1,443
Canada 2,931 2,082 65
Other 77 119 125
------- ------ ------
Total $11,351 $5,654 $1,633
======= ====== ======
</TABLE>
11. Other Items
Other accrued expenses at March 31, 1997 and 1996 included accrued sales
taxes of approximately $250,000, and $380,000, respectively. In addition, other
accrued expenses at March 31, 1997 and 1996 included a warranty accrual of
$856,000.
Other assets at March 31, 1997 include approximately $120,000 of employee
notes receivable relating to the purchase of the Company's Common Stock.
During the fourth quarter of fiscal 1997, the Company reduced its effective
tax rate for fiscal 1997 to 32%.
30
<PAGE> 31
12. Supplemental Selected Quarterly Financial Data (unaudited)
<TABLE>
<CAPTION>
(In thousands, except per share data)
Quarters ended
June 30 Sept. 30 Dec. 31 March 31
------- -------- ------- --------
<S> <C> <C> <C> <C>
1997:
Net revenues $11,189 $ 9,982 $11,624 $11,521
Gross profit 7,063 6,010 6,718 6,381
Net income $ 744 $ 195 $ 457 $ 452
Net income
per share $ .12 $ .03 $ .08 $ .08
1996:
Net revenues $ 9,684 $ 9,954 $10,321 $11,234
Gross profit* 6,442 6,371 6,761 7,152
Net income $ 1,308 $ 864 $ 651 $ 942
Net income
per share $ .20 $ .13 $ .10 $ .15
</TABLE>
* As further described on page 22, the Company has reclassified certain costs.
The reclassification had no effect on operating or net income. The
reclassification reduced gross profit by (in thousands) $163, $179, $148 and
$175 for the quarters ended June 30, September 30, December 31 and March 31 in
fiscal 1996.
Item 9 - Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure
None.
31
<PAGE> 32
PART III
Item 10 - Directors and Executive Officers of the Registrant
Incorporated by reference from portions of the Definitive Proxy Statement
for its 1997 Annual Meeting of Stockholders.
Item 11 - Executive Compensation
Incorporated by reference from portions of the Definitive Proxy Statement
for its 1997 Annual Meeting of Stockholders.
Item 12 - Security Ownership of Certain Beneficial Owners And Management
Incorporated by reference from the portion of the Definitive Proxy
Statement entitled "Security Ownership of Certain Beneficial Owners and
Management".
Item 13 - Certain Relationships and Related Transactions
None.
PART IV
Item 14 - Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) (1) Financial Statements
See index in Part II, Item 8
(2) Financial Statement Schedule
Schedule II Valuation and Qualifying Accounts
All other schedules for which provision is made in the applicable
accounting regulations of the Securities and Exchange Commission are not
required under the related instructions or are inapplicable, and therefore have
been omitted.
32
<PAGE> 33
(3) Exhibits
EXHIBITS
--------
Exhibit No. Description
- ----------- -----------
*3.1 - Amended and Restated Certificate of Incorporation of the
Registrant.
*3.2 - Amended and Restated By-laws of the Registrant.
*4.1 - Specimen Certificate representing the Registrant's Common
Stock.
*10.1 - Lease Agreement, dated July 18, 1990, by and between the
Registrant and Northern Manchester Trust.
*10.2 - Lease Agreement, as amended, dated December 21, 1992, by
and between the Registrant and 1100 Corporation.
*10.3 - Lease Agreement, dated February 15,1993 by and between the
Registrant and Atrium Executive Center, Inc.
*10.4 - Lease Agreement, dated August 1, 1992, by and between the
Registrant and Duffell Financial and Construction Company.
*10.5 - Registration Agreement, dated July 25, 1984, as amended,
by and among the Registrant and certain investors.
*10.6 - Purchase Agreement, dated July 25, 1984, by and among the
Registrant and certain investors.
*10.7 - +1993 Stock Incentive Plan, as amended.
*10.8 - +1993 Employee Stock Purchase Plan.
*10.9 - +1993 Director Stock Option Plan.
*10.10 - +Stock Option Plan of August 1, 1992.
*10.11 - +Incentive Stock Option Plan of January 1, 1985.
*10.12 - +Stock Option Agreement, dated July 23, 1987, by and between
the Registrant and Mr. William M. Scranton.
*10.13 - +Non-Qualified Employee Option Agreement, dated
July 23, 1987, by and between the Registrant and
Mr. Barry R. Gorsun.
*10.14 - Promissory Note, dated April 1, 1991, by Summa Four, Ltd.
*10.15 - Letter Agreement, dated October 15, 1992, by and between
the Registrant and Fleet Bank of Massachusetts, N.A.,
as modified.
*10.16 - Customer Purchase Agreement, dated November 20, 1992, by
and between the Registrant and Sprint/United Management
Company.
*10.17 - Customer Purchase Agreement, dated September 11, 1991, by
and between the Registrant and United States Advanced
Networks.
*10.18 - Customer Purchase Agreement, dated October 10,1990, by and
between the Registrant and Unisys Corporation.
*10.19 - Resale Agreement, dated November 5, 1992, by and between
the Registrant and IBM Canada Ltd.
*10.20 - Agreement, dated October 14, 1992, by and between the
Registrant and Claircom Communications Group, L.P.
* Incorporation herein by reference to the Registrant's Registration
Statement on Form S-1 (File No. 33-66602), as declared effective by the
Securities and Exchange Commission (the "Commission") on September 23, 1993.
+ Management contract or compensatory plan or arrangement filed as an exhibit
pursuant to Item 14(c) of this report.
33
<PAGE> 34
EXHIBITS (CONT'D)
-----------------
Exhibit No. Description
- ----------- -----------
*10.21 - Release, Settlement and License Agreement, dated
November 2, 1992, by and among the Registrant, Omnitel
Corporation, Aspect Telecommunications Corporation and
Richard L. Scully.
*10.22 - Product Development and Licensing Agreement, dated January 19,
1990, by and between the Registrant and The Telephone
Connection, Inc.
*10.23 - Amendment dated August 31, 1994 to Lease Agreement dated
July 18, 1990 with Northern Manchester Trust.
10.24 - +Employment Agreement, dated May 3, 1995, by and between the
Registrant and Edward C. Callahan.
10.25 - Amendment dated August 23, 1995 to Lease Agreement dated
July 18, 1990 with Northern Manchester Trust.
10.26 - +1997 Executive Incentive Bonus Plan.
10.27 - +Employment Agreement, dated July 23, 1996, by and between the
Registrant and Thomas A. St. Germain.
10.28 - +Employment Agreement, dated July 22, 1996, by and between the
Registrant and Theresa Pratt Wang.
10.29 - +Employment Agreement, dated July 23, 1996, by and between the
Registrant and John H. Shaw.
10.30 - +Employment Agreement, dated July 23, 1996, by and between the
Registrant and Michael G. Hluchyj.
10.31 - +Employment Agreement, dated July 22,1996, by and between the
Registrant and Kendrick A. Estey.
10.32 - +Employment Agreement, dated October 18, 1996, by and between
the Registrant and Todd P. Hasselbeck.
10.33 - +Agreement, dated November 16, 1996, by and between the
Registrant and Barry R. Gorsun.
10.34 - +Employment Agreement, dated November 21, 1996, by and between
the Registrant and Robert A. Degan.
10.35 - +Amendment dated June 12, 1997, to Agreement dated November
16, 1996 by and between the Registrant and Barry R. Gorsun
11 - Statement Regarding Computation of Per Share Earnings.
21 - Subsidiaries of the Registrant.
23 - Consent of Coopers & Lybrand L.L.P.
27 - Financial Data Schedule
* Incorporation herein by reference to the Registrant's Registration
Statement on Form S-1 (File No. 33-66602), as declared effective by the
Securities and Exchange Commission (the "Commission") on September 23, 1993.
+ Management contract or compensatory plan or arrangement filed as an exhibit
pursuant to Item 14(c) of this report.
The exhibits filed as part of this Annual Report on Form 10-K are
listed on the exhibit index immediately preceding such exhibits, which
exhibit index is incorporated herein by reference. The Company's
current management contracts and executive compensation plans and
arrangements are listed in the exhibit index incorporated herein by
reference at exhibit numbers 10.7-10.13, 10.24, 10.26-10.35.
The Company will provide copies of the exhibit index, exhibits and Schedule
II to shareholders upon request.
(b) No reports on Form 8-K have been filed during the last quarter of the
period covered by this report.
34
<PAGE> 35
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
Dated: June 20, 1997 Summa Four, Inc.
By: /s/ Thomas A. St. Germain
-------------------------------
Thomas A. St. Germain
Senior Vice President, Treasurer &
Chief Financial Officer
(Principal Financial & Accounting Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
<S> <C> <C>
/s/ Barry R. Gorsun Chairman of the Board June 20, 1997
- --------------------------------
Barry R. Gorsun
/s/ Robert A. Degan President & Chief Executive Officer June 20, 1997
- --------------------------------
Robert A. Degan
/s/ Thomas A. St. Germain Senior Vice President, Treasurer June 20, 1997
- -------------------------------- & Chief Financial Officer
Thomas A. St. Germain (Principal Financial & Accounting Officer)
/s/ Russell I. Pillar Director June 20, 1997
- --------------------------------
Russell I. Pillar
/s/ Gordon T. Ray Director June 20, 1997
- --------------------------------
Gordon T. Ray
/s/ Edgar L. Brown, Jr. Director June 20, 1997
- --------------------------------
Edgar L. Brown, Jr.
/s/ William M. Scranton Director June 20, 1997
- --------------------------------
William M. Scranton
/s/ John A. Shane Director June 20, 1997
- --------------------------------
John A. Shane
</TABLE>
35
<PAGE> 36
SUMMA FOUR, INC.
<TABLE>
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED MARCH 31, 1997, 1996 AND 1995
(IN THOUSANDS)
<CAPTION>
BEGINNING ADDITIONS CHARGED DEDUCTIONS/ ENDING
BALANCE TO COST AND EXPENSES WRITE-OFFS BALANCE
<S> <C> <C> <C> <C>
Allowance for doubtful accounts,
1997 $480 $150 $393 $237
1996 400 274 194 480
1995 450 90 140 400
Inventory reserve,
1997 $442 $112 $554
1996 200 257 $ 15 442
1995 100 158 58 200
Warranty reserve,
1997 $856 $856
1996 750 $137 $ 31 856
1995 275 932 457 750
</TABLE>
36
<PAGE> 37
EXHIBITS
--------
Exhibit No. Description
- ----------- -----------
*3.1 - Amended and Restated Certificate of Incorporation of the
Registrant.
*3.2 - Amended and Restated By-laws of the Registrant.
*4.1 - Specimen Certificate representing the Registrant's Common
Stock.
*10.1 - Lease Agreement, dated July 18, 1990, by and between the
Registrant and Northern Manchester Trust.
*10.2 - Lease Agreement, as amended, dated December 21, 1992, by
and between the Registrant and 1100 Corporation.
*10.3 - Lease Agreement, dated February 15,1993 by and between the
Registrant and Atrium Executive Center, Inc..
*10.4 - Lease Agreement, dated August 1, 1992, by and between the
Registrant and Duffell Financial and Construction Company.
*10.5 - Registration Agreement, dated July 25, 1984, as amended,
by and among the Registrant and certain investors.
*10.6 - Purchase Agreement, dated July 25, 1984, by and among the
Registrant and certain investors.
*10.7 - +1993 Stock Incentive Plan, as amended.
*10.8 - +1993 Employee Stock Purchase Plan
*10.9 - +1993 Director Stock Option Plan.
*10.10 - +Stock Option Plan of August 1, 1992.
*10.11 - +Incentive Stock Option Plan of January 1, 1985
*10.12 - +Stock Option Agreement, dated July 23, 1987, by and between
the Registrant and Mr. William M. Scranton
*10.13 - +Non-Qualified Employee Option Agreement, dated
July 23, 1987, by and between the Registrant and
Mr. Barry R. Gorsun.
*10.14 - Promissory Note, dated April 1, 1991, by Summa Four, Ltd.
*10.15 - Letter Agreement, dated October 15, 1992, by and between
the Registrant and Fleet Bank of Massachusetts, N.A.,
as modified.
*10.16 - Customer Purchase Agreement, dated November 20, 1992, by
and between the Registrant and Sprint/United Management
Company.
*10.17 - Customer Purchase Agreement, dated September 11, 1991, by
and between the Registrant and United States Advanced
Networks.
*10.18 - Customer Purchase Agreement, dated October 10,1990, by and
between the Registrant and Unisys Corporation.
*10.19 - Resale Agreement, dated November 5, 1992, by and between
the Registrant and IBM Canada Ltd.
*10.20 - Agreement, dated October 14, 1992, by and between the
Registrant and Claircom Communications Group, L.P.
* Incorporation herein by reference to the Registrant's Registration
Statement on Form S-1 (File No. 33-66602), as declared effective by the
Securities and Exchange Commission (the "Commission") on September 23, 1993.
+ Management contract or compensatory plan or arrangement filed as an exhibit
pursuant to Item 14(c) of this report.
37
<PAGE> 38
EXHIBITS (CONT'D)
-----------------
Exhibit No. Description
- ----------- -----------
*10.21 - Release, Settlement and License Agreement, dated
November 2, 1992, by and among the Registrant, Omnitel
Corporation, Aspect Telecommunications Corporation and
Richard L. Scully.
*10.22 - Product Development and Licensing Agreement, dated January 19,
1990, by and between the Registrant and The Telephone
Connection, Inc.
*10.23 - Amendment dated August 31, 1994 to Lease Agreement dated
July 18, 1990 with Northern Manchester Trust.
10.24 - +Employment Agreement, dated May 3, 1995, by and between the
Registrant and Edward C. Callahan.
10.25 - Amendment dated August 23, 1995 to Lease Agreement dated
July 18, 1990 with Northern Manchester Trust.
10.26 - +1997 Executive Incentive Bonus Plan.
10.27 - +Employment Agreement, dated July 23, 1996, by and between the
Registrant and Thomas A. St. Germain.
10.28 - +Employment Agreement, dated July 22, 1996, by and between the
Registrant and Theresa Pratt Wang.
10.29 - +Employment Agreement, dated July 23, 1996, by and between the
Registrant and John H. Shaw.
10.30 - +Employment Agreement, dated July 23, 1996, by and between the
Registrant and Michael G. Hluchyj.
10.31 - +Employment Agreement, dated July 22,1996, by and between the
Registrant and Kendrick A. Estey.
10.32 - +Employment Agreement, dated October 18, 1996, by and between
the Registrant and Todd P. Hasselbeck.
10.33 - +Agreement, dated November 16, 1996, by and between the
Registrant and Barry R. Gorsun.
10.34 - +Employment Agreement, dated November 21, 1996, by and between
the Registrant and Robert A. Degan.
10.35 - +Amendment dated June 12, 1997, to Agreement dated November
16, 1996 by and between the Registrant and Barry R. Gorsun
11 - Statement Regarding Computation of Per Share Earnings.
21 - Subsidiaries of the Registrant.
23 - Consent of Coopers & Lybrand L.L.P.
27 - Financial Data Schedule
* Incorporation herein by reference to the Registrant's Registration
Statement on Form S-1 (File No. 33-66602), as declared effective by the
Securities and Exchange Commission (the "Commission") on September 23, 1993.
+ Management contract or compensatory plan or arrangement filed as an exhibit
pursuant to Item 14(c) of this report.
38
<PAGE> 1
Exhibit 10.24
May 1, 1995
Mr. Edward Callahan
1011 Station Way
West Chester, PA 19382
Dear Ed:
On behalf of the Board of Directors of Summa Four, Inc., it is our pleasure to
offer you the position of President and Chief Operating Officer reporting to
Barry R. Gorsun, Chairman of the Board and Chief Executive Officer of Summa
Four, Inc. and a seat on Summa Four's Board of Directors, pursuant to the
following terms and conditions:
This offer is contingent upon successful completion of a pre-placement Drug
Screen at a clinic selected by Summa Four, Inc., as well as your signing the
Employment Agreement - Proprietary Data and Trade Secrets and the Conflict of
Interest Statement (documents attached). Your salary for this position will be
$8076.92 payable bi-weekly, and equivalent to an annual salary of $210,000. The
compensation for each officer is reviewed and set annually by the Compensation
Committee of the Board of Directors after the close of the fiscal year.
Upon commencement of your employment, the Board of Directors will grant to you
the option to purchase two sets of stock options.
An option grant of 90,000 common shares under the company Incentive Stock Option
Plan vesting at 20% per year over five years with a term of 10 years. These will
be priced at fair market value which is determined under our plan by averaging
the closing prices of the stock for the five trading days ending with the first
day of employment.
A non-qualified option grant of 20,000 common shares which will be fully vested
upon commencement of employment. This option will also have a ten year term.
These options will be priced at $5.00 per share below the fair market value
utilizing the same method as outlined in (a) above.
You are eligible to participate in Summa Four, Inc.'s Executive Incentive Bonus
Plan. During your first few weeks of employment, together with Barry Gorsun, you
will establish objectives for the remainder of FY '96. Your incentive plan
incorporates three elements tied to the achievement of the Company's and your
personal goals in Fiscal Year 1996. At plan and upon successful completion of
these objectives, your bonus would be targeted at 40% of your base salary. See
the attached plan for details. For Fiscal Year 1996, 50% of your incentive plan
will be guaranteed on a time basis. This would equate to a $42,000 guaranteed
first year bonus paid annually after it has been reviewed by the Compensation
Committee of the Board of Directors after the close of the fiscal year.
Your duties as President and Chief Operating Officer shall be those customarily
assigned to those offices plus other such duties a the Board may, from time to
time, designate after discussion with you. In addition, those duties will
require your entire work time, attention and energies to Summa Four, Inc. and
your commitment not to render substantial service in self-employment to any
individual or entity other than Summa Four, Inc. without Board approval.
<PAGE> 2
In the event of the substantial diminution in the nature or status of your
responsibilities form those set forth in your job description as President and
Chief Operating Officer or the involuntary termination of your employment by the
Board other than for "Cause" (as defined below), you shall receive the
"Severance Compensation" set forth below. "Cause" shall mean your alcoholism or
drug abuse affecting the performance of your duties, theft, embezzlement, fraud,
conviction of a felony, absenteeism, gross misconduct or gross neglect in the
performance of your duties as President and Chief Operating Officer of the
company, or failure to follow any written directions from the Chief Executive
Officer or the Board of Directors of the Company which are consistent with your
duties as President and Chief Operating Officer of the Company.
In the event of a "Change in Control" (as defined below) which results in (a)
the termination of your position as President and Chief Operating Officer or (b)
the substantial diminution in the nature or status of your responsibilities from
those set forth in your job description and as a result of (a) or 9b) you
terminate your employment, you shall receive the "Severance Compensation" set
forth below.
"Severance Compensation" shall mean a continuation of the payment of the
equivalent of your annual base compensation and insurance benefits in effect at
the time of your termination.
"Change of Control" shall mean the sale of all or substantially all of the
assets of the Company to a non-affiliated company or the acquisition of all or
substantially all of the outstanding common stock of the Company by one
individual or entity.
In compliance with the Immigration Reform and Control Act of 1986, you are
required to establish your identify and employment eligibility. Therefore, on
your first day of employment you will be required to fill out an Employment
Verification Form and present the documents in accordance with this form.
Employment at Summa Four, Inc. will provide you with the opportunity to
participate in numerous employee benefit programs including group health, life
and dental insurance, educational assistance and liberal holidays, vacation and
401K programs. All Summa Four executives begin accruing 3 weeks of vacation upon
date of hire. Summa Four will relocate you in accordance with our Relocation
Policy (see attachment).
Summa Four is dedicated to providing a healthy work environment for every Summa
employee. Therefore, we provide a smoke free environment and require all
employees to comply.
Ed, we are enthusiastic about your joining us, and we believe that our technical
and business goals will provide every opportunity for you to achieve your
personal and professional objectives. Would you please sign and return the
original of this letter and the Employment Agreement within five (5) days,
retaining the copies for your records.
Sincerely,
Barry R. Gorsun
President and CEO
Accepted /s/ Edward Callahan Start Date: May 30, 1995
--------------------- ---------------------
<PAGE> 1
Exhibit 10.25
LEASE AMENDMENT
---------------
NORTHERN MANCHESTER TRUST, c/o John H. Halvorsen, Trustee, One Sundial
Avenue, Suite 510, Manchester, New Hampshire 03103 ("Lessor") and Summa Four,
Inc., 25 Sundial Avenue, Manchester, New Hampshire 03103 ("Lessee"), are parties
to a certain Lease Agreement dated July 18, 1990 (the "Lease").
WHEREAS, the Lessor and Lessee have from time to time amended the Lease
and most recently amended it on August 31, 1994 (the "August 31, 1994
Amendment");
WHEREAS, the August 31, 1994 Amendment extended the term of the Lease
until August 31, 1996;
WHEREAS, the Lessee presently leases 48,690 rentable square feet (RSF)
and has agreed to lease an additional 21,854 RSF on the fourth floor of the west
wing (total 70,554 RSF);
WHEREAS, the parties also desire, inter alia, to extend the term of the
Lease and to change the Lease rate;
NOW, THEREFORE, in consideration of the mutual covenants contained
herein the Lessor and Lessee agree as follows:
1. Commencing September 1, 1995, the Lessee shall lease an additional
21,854 RSF on the fourth floor west wing such that the total space leased is
70,554 RSF.
2. The term for the entire 70,554 RSF shall be until August 31, 1998.
There shall be no early termination or free rent provisions applicable to this
lease term notwithstanding the terms of the Lease or previous amendments
thereto.
3. The lease rate for the entire 70,554 RSF shall be modified as
follows:
<TABLE>
<CAPTION>
Period Base Rent Annual Monthly
- ------ --------- ----------- ----------
<S> <C> <C> <C>
9/1/95 - 8/31/96 $4.50 NNN $317,493.00 $26,457.75
9/1/96 - 8/31/97 $4.75 NNN $335,131.50 $27,927.63
9/1/97 - 8/31/98 $5.00 NNN $352,770.00 $29,397.50
</TABLE>
4. The Lessee's pro rata operating expense and tax expense share (the
so called triple net or "NNN" charges) shall be 26.80% and shall be in addition
to the
-1-
<PAGE> 2
Base Rent in paragraph #3 of this Lease Amendment and shall be billed monthly.
(Current NNN charges are approximately $3.05/RSF).
5. The Lessee shall pay its full pro rata share of the NNN
charges which shall not be limited or reduced by paragraph 7 of Exhibit H of the
Lease.
6. The Additional Space is leased "as is" without any fit-up or
improvement. The furnishings currently located in the Additional Space shall be
removed at no expense to Lessee. In the event that the removal of the
furnishings damages the Additional Space, it shall be repaired at no expense to
Lessee.
7. a. Lessee will maintain its current allotment of
ninety (90) dedicated parking spaces. Lessor shall provide adequate North Wing
and Center Courtyard parking to meet the Tenant's requirements. Failure of
Lessor to provide such adequate parking as required by Tenant shall constitute
an event subject to paragraph 2, Exhibit C.
b. Paragraph 2, Exhibit C, 3rd and 4th sentences are
modified as follows:
Landlord agrees that in the event that Tenant determines that
it does not have sufficient or adequate parking available it
shall have the right to submit the question for arbitration.
Upon a final finding from arbitration that there is
insufficient or inadequate parking for the Tenant, Landlord
shall be required to correct the problem by making additional
or adequate parking available to Tenant.
c. Add a new sentence to the end of Paragraph 2,
Exhibit C:
In the event Landlord fails to perform any material obligation
under the Lease, including compliance with a decision rendered
in arbitration, such failure or non-compliance shall be
considered an event of default which, if not cured by Landlord
within 30 days of written notice thereof from Tenant, shall
entitle Tenant to pursue all of the rights and remedies it may
have in law or in equity.
8. Paragraph 11.12 of the Lease is hereby deleted.
9. Lessor covenants and agrees that Lessee, so long as it shall
not be in default hereunder, shall and may, at all times during the term,
peaceably and quietly have, hold, occupy and enjoy the Premises pursuant to the
terms of the Lease Amendments thereto.
-2-
<PAGE> 3
10. a. Within ninety (90) days after the end of every
calendar year during the term of this lease agreement, Lessor shall provide
Lessee with a written statement of Lessee's pro rata share of the actual NNN
expenses incurred by Lessor and NNN charges paid by Lessee for that year.
b. Lessee shall have the right to review Lessor's
statements at any time within three (3) months after Lessor has provided
statements to Lessee, and upon Lessee's request, Lessor shall make available for
inspection copies of invoices and statements evidencing all such NNN expenses.
c. LESSEE'S RESPONSIBILITY FOR REAL ESTATE TAXES: Lessee
shall be responsible for the payment of its pro rata share of the Real Estate
Taxes assessed against the Premises (i.e., 26.80%) for the period of occupancy
of the Demised Premises by Lessee, as may be evidenced by invoices, bills or
statements received by or submitted to Lessee evidencing billings by the
appropriate taxing governmental authority and relating and pertaining to the
Demised Premises and/or the Premises. Payment of said Real Estate Taxes shall be
made to Lessor based upon a calendar year and made on the first (1st) day of
each calendar month without notice, setoff or deduction whatsoever for each full
calendar month of the term of this Lease Agreement.
If Lessee's share of Lessor's Real Estate Taxes for the Demised
Premises exceed(s) estimated Real Estate Tax payments by Lessee for any calendar
year or part thereof of the term, Lessor shall send notice, a copy of the
applicable tax bill(s) and an explanation thereof, to Lessee during the month of
December during the term. Lessee shall pay to Lessor as additional rent the
amount of such excess within thirty (30) days of receipt of written notice, a
copy of the applicable tax bill(s) and an explanation thereof from Lessor,
failing which payment Lessee shall be responsible for payment of any such
penalty, interest or late charges or assessments incurred by Lessor for tardy
payment. If Lessee's share of the Real Estate Taxes for the Demised Premises is
less than the estimated Real Estate Taxes made by Lessee for any year or part
thereof during the term, Lessor shall pay Lessee the difference within thirty
(30) days of Lessor's computation of Real Estate Taxes. Lessor's Real Estate
Taxes for the Demised Premises shall mean any form of real estate tax,
assessment, license fee, levy or tax imposed by any authority or agency having
the direct or indirect power to tax. Lessor's reasonable determination as to
whether such expenses are attributed to the Demised Premises shall be conclusive
and binding upon the parties hereto.
In the event no billings for Real Estate Taxes have been received by
Lessor for the Demised Premises at the time of Lessee's commencement of
occupancy, or in the event such billings are not received prior to the time of
Lessee's vacating the Demised Premises, or both, Lessee's responsibility to pay,
and Lessor's responsibility to refund, such Real Estate Taxes, shall be based
upon the Real Estate Tax rate for the Premises as displayed in the most recent
Real Estate Tax billings first preceding the
-3-
<PAGE> 4
applicable period of occupancy. Upon Lessee's request, Lessor shall provide
Lessee with copies of receipted real property tax bills for the Premises and/or
the Demised Premises from time to time during the term of this Lease Agreement.
d. COMMON AREA MAINTENANCE AND EXPENSE CHARGES: In
addition to its proportionate share of Real Estate Taxes, Lessee shall be
responsible for the payment of costs of and for any ordinary assessments,
ordinary maintenance or ordinary utility assessments charged as against the
Demised Premises or Lessee's proportionate share of the Premises (i.e. 26.80%),
in the form of assessments Lessor is otherwise bound to pay. Lessee's liability
for such assessments shall be limited to its proportionate share of the total
area of the Premises (i.e. 26.80%). The cost of special assessments for capital
improvements shall be amortized over such maximum period as permitted by Federal
Income Tax Law (the "useful life"). For the purposes hereof the term "capital
improvements(s)" shall mean any improvement which would constitute a capital
improvement or a capital item under generally accepted accounting principles,
and shall not include normal repair, replacement and maintenance of the
building. In the event a capital improvement is made to the existing Premises or
the Demised Premises, Lessee shall pay to Lessor each month during the term of
the Lease Agreement (and any extension or renewal) an amount equal to the cost
of the capital improvement divided by the period of its useful life expressed in
months, the quotient of which shall be multiplied by the then-existing
percentage of Lessee's share of Common Area Maintenance and Expense Charges for
the term of the Lease Agreement (as the same may be adjusted from time to time).
For any periods during the Lease Agreement term in which Lessee must pay for a
capital contribution for a partial month, Lessee's share shall be prorated for
that partial month. In addition to the foregoing the Lessee shall not be liable
for any capital improvements, fees, costs or expenses incurred by Lessor in
improving anything other than the existing Premises and/or the Demised Premises.
If Lessee's actual share of Lessor's Common Area Maintenance and
Expense Charges for the Demised Premises (i.e. 26.80%) exceeds Lessee's
estimated payments for any calendar year or part thereof during the term of this
Lease Agreement, Lessee shall pay to the Lessor as additional rent the amount of
such excess within thirty (30) days after receipt of notice from Lessor of such
amount, such notice to be delivered during the month of February of any
particular term, contain a reasonably detailed description and itemization of
such operating expenses which have increased, set forth the actual amounts of
such increases and set forth the computation of Lessee's proportionate share of
such increases. If Lessee's share of Common Area Maintenance and Expense Charges
for the Demised Premises is less than the estimated payments made by Lessee for
any year or part thereof of the term, Lessor shall provide Lessee with notice
and the other information as described immediately above and shall pay Lessee
the difference within thirty (30) days of Lessor's computation of Common Area
Maintenance and Expense Charges and/or operating expenses. Lessee's share of
Lessor's operating expenses for the Premises is hereby
-4-
<PAGE> 5
defined to be 26.80%. Lessor's operating expenses for the Premises shall include
but not be limited to insurance, management, interior and exterior maintenance
and repair costs, including, without limitation, interior and exterior
repainting, refurnishing, maintenance of roofs, windows and doors, snowplowing
of driveways and parking lots, maintenance of roadways, walls and parking areas,
care of shrubbery and general grounds upkeep, rubbish removal, interior and
exterior cleaning, and the cost of utilities for providing common area electric,
lighting and heat and property identification signs, but excluding therefrom,
structural repairs and depreciation of the Premises, the Demised Premises or any
portion thereof. Such expenses shall include all such costs incurred in
connection with appurtenant easements or additional land hereafter added to the
Premises, so long as Lessee, directly or indirectly benefits from same. Upon
Lessee's request, Lessor shall make available for inspection at management's
office copies of invoices evidencing all such maintenance charges and operating
expenses.
11. All other terms and conditions of the Lease and Amendments not
modified herein shall remain in full force and effect.
LESSOR:
NORTHERN MANCHESTER TRUST
/s/ John H. Halvorsen
- --------------------------- ---------------------------------------
Witness By: John H. Halvorsen
Its: Trustee
Duly Authorized
LESSEE:
SUMMA FOUR, INC.
/s/ L.C. Kellog /s/ Barry Gorsun
- --------------------------- ---------------------------------------
Witness L.C. Kellog By: Barry Gorsun
Its: Chairman
Duly Authorized
-5-
<PAGE> 1
Exhibit 10.26
SUMMA FOUR, INC.
MANAGEMENT INCENTIVE BONUS PLAN
FY 1997 - CORPORATE OFFICERS
INTRODUCTION
------------
The purpose of this incentive program is to motivate employees to achieve a
higher level of performance and to increase the financial attractiveness of a
career with Summa Four, Inc. Specifically, the collective efforts of incentive
bonus plan participants should support the Company's financial and
organizational objectives.
This incentive bonus program is intended to be part of a management system
performing a specific purpose not accomplishable by direct pay and fixed
benefits. It provides financial rewards for current accomplishments on a
selective basis.
The Plan will be developed each year by the President, forwarded to the Chairman
for review and approval, and then submitted to the Compensation Committee of the
Board of Directors for final review and approval. This plan including Exhibit A
setting forth the "Quantitative Goals" must be approved each year.
Page l of 11
<PAGE> 2
SUMMA FOUR, INC.
MANAGEMENT INCENTIVE BONUS PLAN
FY 1997
ARTICLE ONE - DEFINITIONS
-------------------------
1.1 "PLAN" means the Summa Four, Inc. Management Incentive Bonus Plan as
evidenced by this instrument.
1.2 "COMPANY" means Summa Four, Inc., and any successor to all or a major
portion of its property or business.
1.3 "COMMITTEE" means the President, the Chairman, and the Compensation
Committee of the Board of Directors.
1.4 "SELECTED PARTICIPANT" means an Officer, an E6 and an E5 member who is
designated by the Committee to be a Selected Participant in the Plan and
who is not a member of any other incentive/bonus plan at Summa Four, Inc.
(See Exhibit D for Participants)
1.5 "BASE SALARY" means the base compensation at the time of award for a
Selected Participant for a fiscal year.
1.6 "BOOKING" means an order for the Company's product which is shippable
within 12 months of the date of the order and is accepted and acknowledged
by the Company. A booking is further defined as "net" of all discounts,
allowances, credits or other extraordinary charges.
1.7 "REVENUE" means actual revenue determined as the Company customarily
determines it. Revenue is further defined as "net" of all discounts,
allowances, credits, or other extraordinary charges.
1.8 "OPERATING INCOME" means the resultant amount when selling, general,
administrative and research and development expense items are deducted from
gross margin, as the Company customarily determines it and in a manner
consistent with the Annual Budget.
1.9 "ENDING BACKLOG" means a "booking" not yet shipped.
2.0 "PERFORMANCE GOALS" means the Company's achievement of fiscal year ending
backlog, revenue and operating income goals, and the individual performance
objectives.
2.1 "PERFORMANCE AWARDS" means the payment by the Company for the achievement
of the performance goals as defined by this Plan.
Page 2 of 11
<PAGE> 3
SUMMA FOUR, INC.
MANAGEMENT INCENTIVE BONUS PLAN
ARTICLE TWO- THE PLAN
---------------------
2.1 The incentive bonus plan has two components. They are as follows:
a. Yearly achievement of the Company's financial plan.
1. Revenue
2. Operating Income
3. Ending Backlog
b. Individual Performance Objectives.
2.2 Yearly Financial Goals. The yearly financial goals, as defined in paragraph
2.1(a) above, represent 50% of each participants potential bonus award. All
three goals must be met as defined below in order that bonus payments are
made.
2.2.1 For Full Payment:
a. Revenue and Operating Income:
1. Must equal 120% of such amounts shown in the company's
Operating Plan for Fiscal 1997.
b. Ending Backlog:
1. Must be an amount equal to 67% of the company's forecasted
revenues for its first quarter of Fiscal Year 1998.
2.2.2 For Partial Payment:
a. Revenue and Operating Income:
1. As a minimum condition, must equal such amounts shown in the
company's Operating Plan for Fiscal 1997.
b. Ending Backlog:
1. Must be an amount equal to 67% of the company's forecasted
revenues for its first quarter of Fiscal Year 1998.
2.3 Individual Performance Objectives ("SMART" objectives - Para. 2.1 (b)). The
"SMART" objectives represent 50% of each participants potential bonus
award. Each participant must submit for approval by the committee two (2)
SMART objectives. Payment for this portion of the bonus award will be based
on successful accomplishments of these performance objectives and is
independent of the achievement of yearly financial goals.
Page 3 of 11
<PAGE> 4
SUMMA FOUR, INC.
MANAGEMENT INCENTIVE BONUS PLAN
ARTICLE THREE - PAYMENT
-----------------------
3.1 PAYMENT OF AWARDS - Awards earned by participants will be payable within
thirty (30) days following the end of the Fiscal Year and the completion of
the annual audit and the next meeting of the Board of Directors. The
Committee may make award payments in cash or the unrestricted common stock
of the Company, or a combination of both, as it may determine.
ARTICLE FOUR - EFFECTIVE DATE
-----------------------------
4.1 The effective date of the Plan is April 1, 1996.
ARTICLE FIVE - PARTICIPATION
----------------------------
5.1 Each person who is a Selected Participant as of the Effective Date of the
Plan shall become a Participant in the Plan on the Effective Date of the
Plan.
5.2 Each person who becomes a Selected Participant after the Effective Date of
the Plan shall become a Participant in the Plan on the date determined by
the Committee. Their bonus award(s) shall be prorated based upon the
number of weeks as a qualified Selected Participant.
ARTICLE SIX- COMPENSATION COMMITTEE FUND
----------------------------------------
6.1 The Compensation Committee will hold the RESIDUE OF UNAWARDED funds. These
funds will be available for the purpose of making special recognition
awards to Selected Participants or other employees from time to time in the
future as deemed appropriate by the Committee.
6.2 The Compensation Committee fund shall not exceed $250,000.
ARTICLE SEVEN - TERMINATION OF EMPLOYMENT
-----------------------------------------
7.1 Employees who resign or are terminated prior to payment of a Performance
Award are not eligible for awards made subsequent to their last day worked
regardless of the date of accrual of the award.
Page 4 of ll
<PAGE> 5
SUMMA FOUR, INC.
MANAGEMENT INCENTIVE BONUS PLAN
ARTICLE EIGHT - LIMITATION ON PAYMENTS
--------------------------------------
8.1 If a Selected Participant, in the opinion of the Committee, shall have
committed fraud or theft in connection with his employment by the Company,
all rights to receive awards under this Plan shall cease.
ARTICLE NINE - ADMINISTRATION
-----------------------------
9.1 Except as otherwise provided herein, this Plan shall be administered by the
Committee. The Committee shall have authority to make, amend, interpret and
enforce all appropriate rules and regulations for the administration of
this Plan, and decide or resolve any and all questions including
interpretations of this Plan, as may arise in connection with this Plan.
9.2 Any decision or action of the Committee with respect to any question
arising out of or in connection with the administration, interpretation and
application of the Plan and the rules and regulations thereunder shall be
final and conclusive and binding upon all persons having any interest in
the Plan.
9.3 In the administration of the Plan, the Committee may, from time to time,
employ agents and delegate them such administrative duties as it deems fit
and may, from time to time, consult with counsel who may be counsel to the
Company.
9.4 The Committee shall approve Exhibit A setting forth the Percent of Pay
Performance Award percentage and the Quantitative Goals for the following
plan year.
ARTICLE TEN - TERMINATION, SUSPENSION OR AMENDMENT
--------------------------------------------------
10.1 The Committee may, in its sole discretion, terminate, suspend or amend this
Plan at any time or from time to time, in whole or in part. However, no
such termination, suspension or amendment shall adversely affect a Selected
Participant's benefits, except as provided in 8.1 of ARTICLE EIGHT, then
outstanding for any Selected Participant, determined as of the date of such
termination, suspension, or amendment, and no such termination shall in and
of itself cause the acceleration of payments to Selected Participants.
Page 5 of 11
<PAGE> 6
SUMMA FOUR, INC.
MANAGEMENT INCENTIVE BONUS PLAN
ARTICLE ELEVEN - GENERAL CONDITIONS
-----------------------------------
11.1 No interest of any Selected Participant shall be assigned as security for a
loan, and any such purported assignment shall be null, void and of no
effect; nor shall any such interest be subject in any manner, either
voluntarily or involuntarily, to anticipation, sale, transfer, assignment
or encumbrance by or through a Selected Participant.
11.2 No Selected Participant and no other person shall have any legal or
equitable rights or interest in this Plan that are not expressly granted in
this Plan. Participation in the Plan does not give any person any right to
be retained in the service of the Company. The right and power of the
Company to dismiss or discharge any Selected Participant is expressly
reserved.
11.3 The laws of the State of New Hampshire shall govern the construction and
administration of the Plan.
Page 6 of ll
<PAGE> 7
SUMMA FOUR, INC.
MANAGEMENT INCENTIVE BONUS PLAN
QUANTITATIVE GOALS - CORPORATE OFFICERS
EXHIBIT A
<TABLE>
I. FY 1997 FINANCIAL PLAN
<CAPTION>
Q1 Q2 Q3 Q4 FY '97 Total
-- -- -- -- ------------
<S> <C> <C> <C> <C> <C>
Revenue $11,000 $12,500 $14,000 $16,000 $53,500
Operating Income $ 860 $ 1,470 $ 1,710 $ 2,510 $ 6,550
Ending Backlog $ 9,400 $10,600 $12,000 $13,600 $13,600
</TABLE>
20% - Yearly Financial Goals (Para. 2.1 a.) [50% x 40%]
20% - SMART Objectives (Para. 2.3) [50% x 40%]
40% - Total Bonus
II. PERCENT OF PAY PERFORMANCE AWARD
a. PAYMENT under this plan is DEPENDENT on TWO VARIABLES:
(a) 50% BASED ON CORPORATE FINANCIAL PERFORMANCE.
1) versus Fiscal 1996 (Contingent liability begins).
2) versus Fiscal 1997 "Plan".
(b) 50% BASED ON PARTICIPANT(S) PERFORMANCE of individual "SMART"
objectives.
b, FINANCIAL PERFORMANCE: (In all cases, Revenue, Operating Income and
Ending Backlog objectives must be achieved.)
(a) Accrual begins at 4/1/96 in accordance with annual budget.
(b) Contingent liability for payment begins when FY '97 results equal
FY '96 total results for Revenue and Operating Income.
(c) Payout eligibility begins when '97 plan is exceeded; full payment
is available when '97 plan is exceeded by 20%.
<TABLE>
(d) Pro-rata payments of bonus will be made for partial achievement
of financial goals in excess of the 1997 financial plan as
follows: (in $000's)
<CAPTION>
Portion of Portion of
---------- ----------
Revenue Operating Income Bonus Revenue Operating Income Bonus
- ------- ---------------- ----- ------- ---------------- -----
<S> <C> <C> <C> <C> <C>
$53.5 $6.550 -0- $59.9 $7.400 50%
54.5 6.700 10% 60.9 7.500 60%
55.5 6.850 20% 61.9 7.600 70%
56.5 7.000 30% 62.9 7.700 80%
57.5 7.150 40% 63.9 7.800 90%
58.9 7.300 50% 64.2 7.900 100%
65.2 8.000 110%
</TABLE>
Page 7 of 11
<PAGE> 8
SUMMA FOUR, INC. Page 1 of 2
MANAGEMENT INCENTIVE BONUS PLAN
EXHIBIT B - ILLUSTRATION (CORPORATE OFFICERS)
I. PAYMENT under this plan is DEPENDENT on the achievement of TWO VARIABLES:
(A) 50% BASED ON CORPORATE FINANCIAL PERFORMANCE.
1) versus Fiscal 1996 (Contingent liability begins).
2) versus Fiscal 1997 "Plan".
(B) 50% BASED ON PARTICIPANT(S) PERFORMANCE of individual "SMART"
objectives.
II. FINANCIAL PERFORMANCE: (In all cases, Revenue, Operating Income and Ending
Backlog objectives must be achieved.)
(a) Accrual begins at 4/1/96 in accordance with annual budget.
(b) Contingent liability for payment begins when FY '97 results equal
FY '96 total results for Revenue and Operating Income.
(c) Payout eligibility begins when '97 plan is exceeded (see
Exhibit A, II(b) ); 100% of bonus amount is available when 120%
of '97 plan is achieved.
<TABLE>
III. EXAMPLE:
-------
(a) Financial Performance:
<CAPTION>
1997
----
1996 Plan Plan + 10%* Plan + 20%
---- ---- ----------- ----------
("Contingent") ("Payout Available")
Liability
<S> <C> <C> <C> <C>
Revenues $41.0 $53.5 $58.9 $64.2
Operating/Income $ 4.6 $ 6.6 $ 7.3 $ 7.9
Ending Backlog N/A N/A $13.6 $13.6
Bonus Accrual Rate -0- -0- 50% 100%
Bonus Pool Available (**)
(Subject to "earn-out") -0- -0- $ 253 $ 505
<FN>
(*) Provided ending backlog objective is achieved.
</TABLE>
<TABLE>
(**) PARTICIPANTS (CURRENT):
----------------------
<S> <C>
Officers Compensation (8) $1,262
Rate 40%
---
Max Pool 505
Directors Compensation (14) $1,124
Rate 25%
---
Max Pool 281
Managers Compensation (15) $1,139
Rate 15%
---
Max Pool 186
Total Pool $ 972
======
</TABLE>
Page 8 of 11
<PAGE> 9
SUMMA FOUR, INC. Page 2 of 2
MANAGEMENT INCENTIVE BONUS PLAN
EXHIBIT C - YOUR BONUS POTENTIAL
<TABLE>
(b) INDIVIDUAL PERFORMANCE (Officer achieving 1 of 2 SMART Objectives):
Salary = $120,000
Bonus % - Maximum = 40% (x Base)
Individual Performance Objectives = 2
Actual Performance = 1 objective accomplished (= 50% "factor")
Bonus Payment for FY 1997:
<CAPTION>
Plan Plan + 10% Plan +20%
---- ---------- ---------
<S> <C> <C> <C>
* Bonus Vesting % -0- 50%* 100%*
======= =======
* Bonus Payment %
a. Financial Performance = 50% 10.0% 20.0%(3)
b. Individual Objectives = 50% 10.0% 10.0%(4)
------- -------
20.0% 30.0%
* Bonus Payment Amount $24,000 $36,000
======= =======
</TABLE>
<TABLE>
(c) INDIVIDUAL PERFORMANCE (Participant achieving all SMART Objectives):
Salary = $120,000
Bonus % - Maximum = 40% (x Base)
Individual Performance Objectives = 2
Actual Performance = 2 objectives accomplished (= 100% "factor")
Bonus Payment for FY 1997:
<CAPTION>
Plan Plan + 10% Plan +20%
---- ---------- ---------
<S> <C> <C> <C>
* Bonus Vesting % -0- 50%* 100%*
======= =======
* Bonus Payment %
a. Financial Performance = 50% 10.0%(1) 20.0%(3)
b. Individual Objectives = 50% 20.0%(5) 20.0%(6)
------- -------
30.0% 40.0%
* Bonus Payment Amount $36,000 $48,000
======= =======
</TABLE>
Provided ending backlog objective is achieved
(1)50% (40 x .50)
(2)50% (40 x .50)
(3)100% (40 x .50)
(4)50% (40 x .50)
(5)100% (40 x .50)
(6)100% (40 x .50)
Page 9 of 11
<PAGE> 10
SUMMA FOUR, INC.
MANAGEMENT INCENTIVE BONUS PLAN
EXHIBIT D - OFFICER PARTICIPANT OBJECTIVES
See attached objectives of each Officer participant.
Page 10 of 11
<PAGE> 11
SUMMA FOUR, INC.
MANAGEMENT INCENTIVE BONUS PLAN
EXHIBIT D - OFFICER PARTICIPANTS
Robert A. Degan
Kendrick A. Estey
Barry R. Gorsun
Todd P. Hasselbeck
Michael G. Hluchyj
Theresa M. Pratt Wang
John H. Shaw
Thomas A. St. Germain
Page 11 of ll
<PAGE> 1
Exhibit 10.27
EMPLOYMENT AGREEMENT
--------------------
THIS EMPLOYMENT AGREEMENT (the "Agreement"), made this 23rd day of
July, 1996, is entered into by Summa Four, Inc., a New Hampshire corporation
with its principal place of business at Manchester, New Hampshire (the
"Company"), and Thomas St. Germain (the "Employee").
The Company desires to employ the Employee, and the Employee desires to
be employed by the Company. In consideration of the mutual covenants and
promises contained herein, and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged by the parties hereto,
the parties agree as follows:
1. EMPLOYMENT AT WILL. The Company hereby agrees to employ the Employee
as an employee at will, and the Employee hereby accepts such employment with the
Company, upon the terms set forth in this Agreement, for the period commencing
on July 1, 1996 (the "Commencement Date") and ending on the date the Employee's
employment is terminated in accordance with the provisions of Section 4 (such
period, the "Employment Period").
2. TITLE; CAPACITY. The Employee shall serve as Senior Vice President
and Chief Financial Officer or in such other position as the Company or its
Board of Directors (the "Board") may determine from time to time. The Employee
shall be based at the Company's headquarters in Manchester, New Hampshire, or
such place or places in the continental United States as the Board shall
reasonably determine and the Employee shall agree. The Employee shall be subject
to the supervision of, and
<PAGE> 2
shall have such authority as is delegated to him by, the Board or such officer
of the Company as may be designated by the Board.
The Employee hereby accepts such employment and agrees to undertake the
duties and responsibilities inherent in such position and such other duties and
responsibilities as the Board or its designee shall from time to time reasonably
assign to him. The Employee agrees to devote his entire business time, attention
and energies to the business and interests of the Company during the Employment
Period. The Employee agrees to abide by the rules, regulations, instructions,
personnel practices and policies of the Company and any changes therein which
may be adopted from time to time by the Company. The Employee acknowledges
receipt of copies of all such rules and policies committed to writing as of the
date of this Agreement.
3. Compensation and Benefits.
-------------------------
3.1 SALARY. The Company shall pay the Employee, in bi-weekly
installments, an annual base salary of $160,000 (less applicable state and
federal taxes) for the period commencing on the Commencement Date and ending
March 31, 1997, subject to adjustment thereafter as determined annually by the
Board at its first regular meeting following its receipt of the Company's
audited financial results for its preceding fiscal year.
3.2 BONUS. For such period ending March 31, 1997, the Employee
shall be eligible for a bonus of up to 40% of his current base salary based on
the achievement of certain goals approved by the Company's Compensation
Committee.
-2-
<PAGE> 3
Half of the bonus shall be based on the satisfaction of personal objectives and
the other half shall be based on the satisfaction of corporate objectives for
the Company's fiscal year then ending, as determined by the Company's management
and approved by its Board of Directors. If either the Employee's personal
objectives or corporate objectives are satisfied, the Employee shall receive
that portion of his bonus related to the satisfaction of either of those
objectives without regard to whether the other is satisfied. In order for the
Employee to be entitled to payment of his bonus, he must be actively employed on
the date the bonus is paid. For periods thereafter, the Employee shall be
entitled to participate in such bonus programs, if any, as may be established
from time to time by its Board of Directors.
3.3 FRINGE BENEFITS. The Employee shall be entitled to
participate in all bonus and benefit programs that the Company establishes and
makes available to its employees, if any, to the extent that Employee's
position, tenure, salary, age, health and other qualifications make him eligible
to participate, and to vacations in accordance with the Company's vacation
policy.
3.4 REIMBURSEMENT OF EXPENSES. The Company shall reimburse the
Employee for all gasoline used by the Employee in one automobile owned or leased
by him and for reasonable travel, entertainment and other expenses incurred or
paid by the Employee in connection with, or related to, the performance of his
duties, responsibilities or services under this Agreement, upon presentation by
the Employee of documentation, expense statements, vouchers and/or such other
supporting information as the Company may request, PROVIDED, HOWEVER, that (i)
the amount
-3-
<PAGE> 4
available for such travel, entertainment and other expenses may be fixed in
advance by senior management or the Board and (ii) amounts so reimbursed for
gasoline will be included in Employee's taxable income except as so documented
as a business expense.
4. EMPLOYMENT TERMINATION WITHOUT CAUSE. The Employee shall have
the status of an employee at will. The Company may terminate the Employee's
employment at any time without cause. The Employee has no obligation to remain
employed by the Company and may terminate his employment at any time.
4.1 TERMINATION FOR CAUSE. In the event the Employee's
employment is terminated for cause the Company shall pay to the Employee the
compensation and benefits otherwise payable to him under Section 3 through the
last day of his actual employment by the Company. For purposes of this
Agreement, "cause" for termination shall be deemed to exist upon (a) a good
faith finding by the Company of failure of the Employee to perform his assigned
duties for the Company, dishonesty, gross negligence or misconduct, or (b) the
conviction of the Employee of, or the entry of a pleading of guilty or nolo
contendere by the Employee to, any crime involving moral turpitude or any
felony.
4.2 TERMINATION FOR DEATH OR DISABILITY. If the Employee's
employment is terminated by death or because of disability, the Company shall
pay to the estate of the Employee or to the Employee, as the case may be, the
compensation which would otherwise be payable to the Employee up to the end of
the month in which the termination of his employment because of death or
disability
-4-
<PAGE> 5
occurs. For purposes of this Agreement, the term "disability" shall mean the
inability of the Employee, due to a physical or mental disability, for a period
of 90 days, whether or not consecutive, during any 360-day period to perform the
services contemplated under this Agreement. A determination of disability shall
be made by a physician satisfactory to both the Employee and the Company,
PROVIDED THAT if the Employee and the Company do not agree on a physician, the
Employee and the Company shall each select a physician and these two together
shall select a third physician, whose determination as to disability shall be
binding on all parties.
4.3 TERMINATION BY THE COMPANY OTHER THAN FOR CAUSE. If the
Employee's employment is terminated by the Company for any reason other than for
cause, the Company shall continue paying the Employee's base salary, after the
Employee's termination of employment, for up to twelve (12) months (the
"Severance Benefit"). Payment of the Severance Benefit shall cease upon the
earlier of (a) the first anniversary of the Employee's date of termination, or
(b) the date the Employee begins employment with another employer (or is
re-employed by the Company).
4.4 TERMINATION FOLLOWING CHANGE IN CONTROL. If the Employee's
employment is terminated by the Company for any reason within one year after a
change in control, the Company shall continue paying the Employee's base salary,
after the Employee's termination of employment, for up to twelve (12) months
(the "Severance Benefit"). Payment of the Severance Benefit shall cease upon the
earlier of (a) the first anniversary of the Employee's date of termination, or
(b) the date the Employee begins employment with another employer (or is
re-employed by the
-5-
<PAGE> 6
Company). For the purposes of this paragraph, a change in control is defined as
provided for in Attachment "A."
5. Non-Compete.
------------
(a) During the Employment Period and for a period of
twelve (12) months after the Employee's termination of employment for any
reason, the Employee will not directly or indirectly:
(i) as an individual proprietor, partner, stockholder,
officer, employee, director, joint venturer, investor, lender, consultant or in
any other capacity whatsoever (other than as the holder of not more than one
percent (1%) of the total outstanding stock of a publicly held company), render
any services to any business engaged in the design, manufacture or sale of
programmable switches (including, without limitation, Excel), or to any
non-legacy switch manufacturer (including, without limitation, Sattel) or any
major original equipment manufacturer customers of Excel (including, without
limitation, Boston Technology, Glenayre or AccessLine); or
(ii) recruit, solicit or induce, or attempt to induce, any
employee or employees of the Company to terminate their employment with, or
otherwise cease their relationship with, the Company; or
(iii) solicit, divert or take away, or attempt to divert or
to take away, the business or patronage of any of the clients, customers or
accounts, or prospective clients, customers or accounts, of the Company which
were contacted, solicited or served by the Employee while employed by the
Company.
-6-
<PAGE> 7
(b) If any restriction set forth in this Section 5 is found by
any court of competent jurisdiction to be unenforceable because it extends for
too long a period of time or over too great a range of activities or in too
broad a geographic area, it shall be interpreted to extend only over the maximum
period of time, range of activities or geographic area as to which it may be
enforceable.
(c) The restrictions contained in this Section 5 are necessary
for the protection of the business and goodwill of the Company and are
considered by the Employee to be reasonable for such purpose. The Employee
agrees that any breach of this Section 5 will cause the Company substantial and
irrevocable damage and therefore, in the event of any such breach, in addition
to such other remedies which may be available, the Company shall have the right
to seek specific performance and injunctive relief.
6. NOTICES. All notices required or permitted under this
Agreement shall be in writing and shall be deemed effective upon personal
delivery or upon deposit in the United States Post Office, by registered or
certified mail, postage prepaid, addressed to the other party at the address
shown above, or at such other address or addresses as either party shall
designate to the other in accordance with this Section 6.
7. PRONOUNS. Whenever the context may require, any pronouns used
in this Agreement shall include the corresponding masculine, feminine or neuter
forms, and the singular forms of nouns and pronouns shall include the plural,
and vice versa.
-7-
<PAGE> 8
8. ENTIRE AGREEMENT. This Agreement constitutes the entire
agreement between the parties and supersedes all prior agreements and
understandings, whether written or oral, relating to the subject matter of this
Agreement.
9. AMENDMENT. This Agreement may be amended or modified only by a
written instrument executed by both the Company and the Employee.
10. GOVERNING LAW. This Agreement shall be construed, interpreted
and enforced in accordance with the laws of the State of New Hampshire.
11. SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon
and inure to the benefit of both parties and their respective successors and
assigns, including any corporation with which or into which the Company may be
merged or which may succeed to its assets or business, provided, however, that
the obligations of the Employee are personal and shall not be assigned by him.
12. Miscellaneous.
-------------
12.1 No delay or omission by the Company in exercising any
right under this Agreement shall operate as a waiver of that or any other right.
A waiver or consent given by the Company on any one occasion shall be effective
only in that instance and shall not be construed as a bar or waiver of any right
on any other occasion.
12.2 The captions of the sections of this Agreement are for
convenience of reference only and in no way define, limit or affect the scope or
substance of any section of this Agreement.
-8-
<PAGE> 9
12.3 In case any provision of this Agreement shall be invalid,
illegal or otherwise unenforceable, the validity, legality and enforceability of
the remaining provisions shall in no way be affected or impaired thereby.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year set forth above.
SUMMA FOUR, INC.
By: /s/ Barry Gorsun
-----------------------------------------
Title: CEO
--------------------------------------
THOMAS ST. GERMAIN
/s/ Thomas St. Germain
--------------------------------------------
-9-
<PAGE> 10
ATTACHMENT "A"
For the purposes of this Agreement, a change of control shall be deemed
to have occurred if at any shareholders meeting fifty percent (50%) of the
total shares voting of the shares of the Company's common stock outstanding are
voted either directly or by proxy for a person or persons other than those
nominated by the Company's Board of Directors or if the individuals who, as of
the date hereof, constitute the Board of Directors of the Company, cease for any
reason to constitute at least a majority of the Board, provided that any person
becoming a director subsequent to the date hereof whose election or nomination
for election by the Company's shareholders was approved of by a vote of at least
a majority of the Directors then comprising the Board, shall be, for the
purposes of this Agreement, considered as though such person was a member of the
Board as of the date hereof.
-10-
<PAGE> 1
Exhibit 10.28
EMPLOYMENT AGREEMENT
--------------------
THIS EMPLOYMENT AGREEMENT (the "Agreement"), made this 22nd day of
July, 1996, is entered into by Summa Four, Inc., a New Hampshire corporation
with its principal place of business at Manchester, New Hampshire (the
"Company"), and Theresa Pratt Wang (the "Employee").
The Company desires to employ the Employee, and the Employee desires to
be employed by the Company. In consideration of the mutual covenants and
promises contained herein, and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged by the parties hereto,
the parties agree as follows:
1. EMPLOYMENT AT WILL. The Company hereby agrees to employ the Employee
as an employee at will, and the Employee hereby accepts such employment with the
Company, upon the terms set forth in this Agreement, for the period commencing
on July 1, 1996 (the "Commencement Date") and ending on the date the Employee's
employment is terminated in accordance with the provisions of Section 4 (such
period, the "Employment Period").
2. TITLE; CAPACITY. The Employee shall serve as Vice President,
Engineering or in such other position as the Company or its Board of Directors
(the "Board") may determine from time to time. The Employee shall be based at
the Company's headquarters in Manchester, New Hampshire, or such place or places
in the continental United States as the Board shall reasonably determine and the
Employee shall agree. The Employee shall be subject to the supervision of, and
shall have such authority as is delegated to him by, the Board or such officer
of the Company as may be designated by the Board.
<PAGE> 2
The Employee hereby accepts such employment and agrees to undertake the
duties and responsibilities inherent in such position and such other duties and
responsibilities as the Board or its designee shall from time to time reasonably
assign to him. The Employee agrees to devote her entire business time, attention
and energies to the business and interests of the Company during the Employment
Period. The Employee agrees to abide by the rules, regulations, instructions,
personnel practices and policies of the Company and any changes therein which
may be adopted from time to time by the Company. The Employee acknowledges
receipt of copies of all such rules and policies committed to writing as of the
date of this Agreement.
3. Compensation and Benefits.
-------------------------
3.1 SALARY. The Company shall pay the Employee, in bi-weekly
installments, an annual base salary of $150,000 (less applicable state and
federal taxes) for the period commencing on the Commencement Date and ending
March 31, 1997, subject to adjustment thereafter as determined annually by the
Board at its first regular meeting following its receipt of the Company's
audited financial results for its preceding fiscal year.
3.2 BONUS. For such period ending March 31, 1997, the Employee
shall be eligible for a bonus of up to 40% of her current base salary based on
the achievement of certain goals approved by the Company's Compensation
Committee. Half of the bonus shall be based on the satisfaction of personal
objectives and the other half shall be based on the satisfaction of corporate
objectives for the Company's fiscal year then ending, as determined by the
Company's management and approved by its Board of
-2-
<PAGE> 3
Directors. If either the Employee's personal objectives or corporate objectives
are satisfied, the Employee shall receive that portion of her bonus related to
the satisfaction of either of those objectives without regard to whether the
other is satisfied. In order for the Employee to be entitled to payment of her
bonus, he must be actively employed on the date the bonus is paid. For periods
thereafter, the Employee shall be entitled to participate in such bonus
programs, if any, as may be established from time to time by its Board of
Directors.
3.3 FRINGE BENEFITS. The Employee shall be entitled to
participate in all bonus and benefit programs that the Company establishes and
makes available to its employees, if any, to the extent that Employee's
position, tenure, salary, age, health and other qualifications make him eligible
to participate, and to vacations in accordance with the Company's vacation
policy.
3.4 REIMBURSEMENT OF EXPENSES. The Company shall reimburse the
Employee for all gasoline used by the Employee in one automobile owned or leased
by her and for reasonable travel, entertainment and other expenses incurred or
paid by the Employee in connection with, or related to, the performance of her
duties, responsibilities or services under this Agreement, upon presentation by
the Employee of documentation, expense statements, vouchers and/or such other
supporting information as the Company may request, PROVIDED, HOWEVER, that (i)
the amount available for such travel, entertainment and other expenses may be
fixed in advance by senior management or the Board and (ii) amounts so
reimbursed for gasoline will be included in Employee's taxable income except as
so documented as a business expense.
-3-
<PAGE> 4
3.5 STOCK OPTION. At the Board's July 19, 1996 meeting, the
Employee shall be granted an incentive stock option to purchase 7,500 shares of
the Company's common stock under its 1993 Stock Incentive Plan (the "Plan").
This new grant shall be in addition to all pre-existing grants. The new option
to purchase 7,500 shares shall vest one-third on July 19, 1997, one-third on
July 19, 1998 and one-third on July 19, 1999. Stock options granted may be
exercised by the Employee, to the extent vested, in accordance with the terms of
the Plan.
4. EMPLOYMENT TERMINATION WITHOUT CAUSE. The Employee shall have
the status of an employee at will. The Company may terminate the Employee's
employment at any time without cause. The Employee has no obligation to remain
employed by the Company and may terminate her employment at any time.
4.1 TERMINATION FOR CAUSE. In the event the Employee's
employment is terminated for cause the Company shall pay to the Employee the
compensation and benefits otherwise payable to him under Section 3 through the
last day of her actual employment by the Company. For purposes of this
Agreement, "cause" for termination shall be deemed to exist upon (a) a good
faith finding by the Company of failure of the Employee to perform her assigned
duties for the Company, dishonesty, gross negligence or misconduct, or (b) the
conviction of the Employee of, or the entry of a pleading of guilty or nolo
contendere by the Employee to, any crime involving moral turpitude or any
felony.
4.2 TERMINATION FOR DEATH OR DISABILITY. If the Employee's
employment is terminated by death or because of disability, the Company shall
pay to the estate of
-4-
<PAGE> 5
the Employee or to the Employee, as the case may be, the compensation which
would otherwise be payable to the Employee up to the end of the month in which
the termination of her employment because of death or disability occurs. For
purposes of this Agreement, the term "disability" shall mean the inability of
the Employee, due to a physical or mental disability, for a period of 90 days,
whether or not consecutive, during any 360-day period to perform the services
contemplated under this Agreement. A determination of disability shall be made
by a physician satisfactory to both the Employee and the Company, PROVIDED THAT
if the Employee and the Company do not agree on a physician, the Employee and
the Company shall each select a physician and these two together shall select a
third physician, whose determination as to disability shall be binding on all
parties.
4.3 TERMINATION BY THE COMPANY OTHER THAN FOR CAUSE. If the
Employee's employment is terminated by the Company for any reason other than for
cause, the Company shall continue paying the Employee's base salary, after the
Employee's termination of employment, for up to six (6) months (the "Severance
Benefit"). Payment of the Severance Benefit shall cease upon the earlier of (a)
the date six (6) months after the Employee's date of termination, or (b) the
date the Employee begins employment with another employer (or is re-employed by
the Company).
4.4 TERMINATION FOLLOWING CHANGE IN CONTROL. If the Employee's
employment is terminated by the Company for any reason within one year after a
change in control, the Company shall continue paying the Employee's base salary,
after the Employee's termination of employment, for up to twelve (12) months
(the "Severance
-5-
<PAGE> 6
Benefit"). Payment of the Severance Benefit shall cease upon the earlier of (a)
the first anniversary of the Employee's date of termination, or (b) the date the
Employee begins employment with another employer (or is re-employed by the
Company). For the purposes of this paragraph, a change in control is defined as
provided for in Attachment "A".
5. Non-Compete.
------------
(a) During the Employment Period and for a period of
twelve (12) months after the Employee's termination of employment for any
reason, the Employee will not directly or indirectly:
(i) as an individual proprietor, partner, stockholder,
officer, employee, director, joint venturer, investor, lender, consultant or in
any other capacity whatsoever (other than as the holder of not more than one
percent (1%) of the total outstanding stock of a publicly held company), render
any services to any business engaged in the design, manufacture or sale of
programmable switches (including, without limitation, Excel), or to any
non-legacy switch manufacturer (including, without limitation, Sattel) or any
major original equipment manufacturer customers of Excel (including, without
limitation, Boston Technology, Glenayre or AccessLine); or
(ii) recruit, solicit or induce, or attempt to induce, any
employee or employees of the Company to terminate their employment with, or
otherwise cease their relationship with, the Company; or
(iii) solicit, divert or take away, or attempt to divert or
to take away, the business or patronage of any of the clients, customers or
accounts, or prospective clients,
-6-
<PAGE> 7
customers or accounts, of the Company which were contacted, solicited or served
by the Employee while employed by the Company.
(b) If any restriction set forth in this Section 5 is found by
any court of competent jurisdiction to be unenforceable because it extends for
too long a period of time or over too great a range of activities or in too
broad a geographic area, it shall be interpreted to extend only over the maximum
period of time, range of activities or geographic area as to which it may be
enforceable.
(c) The restrictions contained in this Section 5 are necessary
for the protection of the business and goodwill of the Company and are
considered by the Employee to be reasonable for such purpose. The Employee
agrees that any breach of this Section 5 will cause the Company substantial and
irrevocable damage and therefore, in the event of any such breach, in addition
to such other remedies which may be available, the Company shall have the right
to seek specific performance and injunctive relief.
6. NOTICES. All notices required or permitted under this
Agreement shall be in writing and shall be deemed effective upon personal
delivery or upon deposit in the United States Post Office, by registered or
certified mail, postage prepaid, addressed to the other party at the address
shown above, or at such other address or addresses as either party shall
designate to the other in accordance with this Section 6.
7. PRONOUNS. Whenever the context may require, any pronouns used
in this Agreement shall include the corresponding masculine, feminine or neuter
forms, and the singular forms of nouns and pronouns shall include the plural,
and vice versa.
-7-
<PAGE> 8
8. ENTIRE AGREEMENT. This Agreement constitutes the entire
agreement between the parties and supersedes all prior agreements and
understandings, whether written or oral, relating to the subject matter of this
Agreement.
9. AMENDMENT. This Agreement may be amended or modified only by a
written instrument executed by both the Company and the Employee.
10. GOVERNING LAW. This Agreement shall be construed, interpreted
and enforced in accordance with the laws of the State of New Hampshire.
11. SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon
and inure to the benefit of both parties and their respective successors and
assigns, including any corporation with which or into which the Company may be
merged or which may succeed to its assets or business, provided, however, that
the obligations of the Employee are personal and shall not be assigned by him.
12. Miscellaneous.
-------------
12.1 No delay or omission by the Company in exercising any
right under this Agreement shall operate as a waiver of that or any other right.
A waiver or consent given by the Company on any one occasion shall be effective
only in that instance and shall not be construed as a bar or waiver of any right
on any other occasion.
12.2 The captions of the sections of this Agreement are for
convenience of reference only and in no way define, limit or affect the scope or
substance of any section of this Agreement.
-8-
<PAGE> 9
12.3 In case any provision of this Agreement shall be invalid,
illegal or otherwise unenforceable, the validity, legality and enforceability of
the remaining provisions shall in no way be affected or impaired thereby.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year set forth above.
SUMMA FOUR, INC.
By: /s/ Barry Gorsun
-----------------------------------------
Title: Chairman
--------------------------------------
THERESA PRATT WANG
/s/ Theresa Pratt Wang
--------------------------------------------
-9-
<PAGE> 10
ATTACHMENT "A"
For the purposes of this Agreement, a change of control shall be deemed
to have occurred if at any shareholders meeting fifty percent (50%) of the total
shares voting of the shares of the Company's common stock outstanding are voted
either directly or by proxy for a person or persons other than those nominated
by the Company's Board of Directors or if the individuals who, as of the date
hereof, constitute the Board of Directors of the Company, cease for any reason
to constitute at least a majority of the Board, provided that any person
becoming a director subsequent to the date hereof whose election or nomination
for election by the Company's shareholders was approved of by a vote of at least
a majority of the Directors then comprising the Board, shall be, for the
purposes of this Agreement, considered as though such person was a member of the
Board as of the date hereof.
-10-
<PAGE> 1
Exhibit 10.29
EMPLOYMENT AGREEMENT
--------------------
THIS EMPLOYMENT AGREEMENT (the "Agreement"), made this 23 day of
July, 1996, is entered into by Summa Four, Inc., a New Hampshire corporation
with its principal place of business at Manchester, New Hampshire (the
"Company"), and John Shaw (the "Employee").
The Company desires to employ the Employee, and the Employee desires to
be employed by the Company. In consideration of the mutual covenants and
promises contained herein, and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged by the parties hereto,
the parties agree as follows:
1. EMPLOYMENT AT WILL. The Company hereby agrees to employ the Employee
as an employee at will, and the Employee hereby accepts such employment with the
Company, upon the terms set forth in this Agreement, for the period commencing
on July 1, 1996 (the "Commencement Date") and ending on the date the Employee's
employment is terminated in accordance with the provisions of Section 4 (such
period, the "Employment Period").
2. TITLE; CAPACITY. The Employee shall serve as Vice President,
Business Development and Strategy, or in such other position as the Company or
its Board of Directors (the "Board") may determine from time to time. The
Employee shall be based at the Company's headquarters in Manchester, New
Hampshire, or such place or places in the continental United States as the Board
shall reasonably determine and the Employee shall agree. The Employee shall be
subject to the supervision of, and shall have such authority as is delegated to
him by, the Board or such officer of the Company as may be designated by the
Board.
<PAGE> 2
The Employee hereby accepts such employment and agrees to undertake the
duties and responsibilities inherent in such position and such other duties and
responsibilities as the Board or its designee shall from time to time reasonably
assign to him. The Employee agrees to devote his entire business time, attention
and energies to the business and interests of the Company during the Employment
Period. The Employee agrees to abide by the rules, regulations, instructions,
personnel practices and policies of the Company and any changes therein which
may be adopted from time to time by the Company. The Employee acknowledges
receipt of copies of all such rules and policies committed to writing as of the
date of this Agreement.
3. Compensation and Benefits.
-------------------------
3.1 SALARY. The Company shall pay the Employee, in bi-weekly
installments, an annual base salary of $120,000 (less applicable state and
federal taxes) for the period commencing on the Commencement Date and ending
March 31, 1997, subject to adjustment thereafter as determined annually by the
Board at its first regular meeting following its receipt of the Company's
audited financial results for its preceding fiscal year.
3.2 BONUS. For such period ending March 31, 1997, the Employee
shall be eligible for a bonus of up to 40% of his current base salary based on
the achievement of certain goals approved by the Company's Compensation
Committee. Half of the bonus shall be based on the satisfaction of personal
objectives and the other half shall be based on the satisfaction of corporate
objectives for the Company's fiscal year then ending, as determined by the
Company's management and approved by its Board of
-2-
<PAGE> 3
Directors. If either the Employee's personal objectives or corporate objectives
are satisfied, the Employee shall receive that portion of his bonus related to
the satisfaction of either of those objectives without regard to whether the
other is satisfied. In order for the Employee to be entitled to payment of his
bonus, he must be actively employed on the date the bonus is paid. For periods
thereafter, the Employee shall be entitled to participate in such bonus
programs, if any, as may be established from time to time by the Board of
Directors.
3.3 FRINGE BENEFITS. The Employee shall be entitled to
participate in all bonus and benefit programs that the Company establishes and
makes available to its employees, if any, to the extent that Employee's
position, tenure, salary, age, health and other qualifications make him eligible
to participate, and to vacations in accordance with the Company's vacation
policy.
3.4 REIMBURSEMENT OF EXPENSES. The Company shall reimburse the
Employee for all gasoline used by the Employee in one automobile owned or leased
by him and for reasonable travel, entertainment and other expenses incurred or
paid by the Employee in connection with, or related to, the performance of his
duties, responsibilities or services under this Agreement, upon presentation by
the Employee of documentation, expense statements, vouchers and/or such other
supporting information as the Company may request, PROVIDED, HOWEVER, that (i)
the amount available for such travel, entertainment and other expenses may be
fixed in advance by senior management or the Board and (ii) amounts so
reimbursed for gasoline will be included in Employee's taxable income except as
so documented as a business expense.
-3-
<PAGE> 4
3.5 STOCK OPTION. At the Board's July 19, 1996 meeting, the
Employee shall be granted an incentive stock option to purchase 4,250 shares of
the Company's common stock under its 1993 Stock Incentive Plan (the "Plan").
This new grant shall be in addition to all pre-existing grants. The new option
to purchase 4,250 shares vests one- third on July 19, 1997, one-third on July
19, 1998 and one-third on July 19, 1999. Stock options granted may be exercised
by the Employee, to the extent vested, in accordance with the terms of the Plan.
4. EMPLOYMENT TERMINATION WITHOUT CAUSE. The Employee shall have
the status of an employee at will. The Company may terminate the Employee's
employment at any time without cause. The Employee has no obligation to remain
employed by the Company and may terminate his employment at any time.
4.1 TERMINATION FOR CAUSE. In the event the Employee's
employment is terminated for cause the Company shall pay to the Employee the
compensation and benefits otherwise payable to him under Section 3 through the
last day of his actual employment by the Company. For purposes of this
Agreement, "cause" for termination shall be deemed to exist upon (a) a good
faith finding by the Company of failure of the Employee to perform his assigned
duties for the Company, dishonesty, gross negligence or misconduct, or (b) the
conviction of the Employee of, or the entry of a pleading of guilty or nolo
contendere by the Employee to, any crime involving moral turpitude or any
felony.
4.2 TERMINATION FOR DEATH OR DISABILITY. If the Employee's
employment is terminated by death or because of disability, the Company shall
pay to the estate of
-4-
<PAGE> 5
the Employee or to the Employee, as the case may be, the compensation which
would otherwise be payable to the Employee up to the end of the month in which
the termination of his employment because of death or disability occurs. For
purposes of this Agreement, the term "disability" shall mean the inability of
the Employee, due to a physical or mental disability, for a period of 90 days,
whether or not consecutive, during any 360-day period to perform the services
contemplated under this Agreement. A determination of disability shall be made
by a physician satisfactory to both the Employee and the Company, PROVIDED THAT
if the Employee and the Company do not agree on a physician, the Employee and
the Company shall each select a physician and these two together shall select a
third physician, whose determination as to disability shall be binding on all
parties.
4.3 TERMINATION BY THE COMPANY OTHER THAN FOR CAUSE. If the
Employee's employment is terminated by the Company for any reason other than for
cause, the Company shall continue paying the Employee's base salary, after the
Employee's termination of employment, for up to six (6) months (the "Severance
Benefit"). Payment of the Severance Benefit shall cease upon the earlier of (a)
the date six (6) months after the Employee's date of termination, or (b) the
date the Employee begins employment with another employer (or is re-employed by
the Company).
4.4 TERMINATION FOLLOWING CHANGE IN CONTROL. If the Employee's
employment is terminated by the Company for any reason within one year after a
change in control, the Company shall continue paying the Employee's base salary,
after the Employee's termination of employment, for up to twelve (12) months
(the "Severance
-5-
<PAGE> 6
Benefit"). Payment of the Severance Benefit shall cease upon the earlier of (a)
the first anniversary of the Employee's date of termination, or (b) the date the
Employee begins employment with another employer (or is re-employed by the
Company). For the purposes of this paragraph, a change in control is defined as
provided for in Attachment "A."
5. Non-Compete.
-----------
(a) During the Employment Period and for a period of
twelve (12) months after the Employee's termination of employment for any
reason, the Employee will not directly or indirectly:
(i) as an individual proprietor, partner, stockholder,
officer, employee, director, joint venturer, investor, lender, consultant or in
any other capacity whatsoever (other than as the holder of not more than one
percent (1%) of the total outstanding stock of a publicly held company), render
any services to any business engaged in the design, manufacture or sale of
programmable switches (including, without limitation, Excel), or to any
non-legacy switch manufacturer (including, without limitation, Sattel) or any
major original equipment manufacturer customers of Excel (including, without
limitation, Boston Technology, Glenayre or AccessLine); or
(ii) recruit, solicit or induce, or attempt to induce, any
employee or employees of the Company to terminate their employment with, or
otherwise cease their relationship with, the Company; or
(iii) solicit, divert or take away, or attempt to divert or
to take away, the business or patronage of any of the clients, customers or
accounts, or prospective clients,
-6-
<PAGE> 7
customers or accounts, of the Company which were contacted, solicited or served
by the Employee while employed by the Company.
(b) If any restriction set forth in this Section 5 is found by
any court of competent jurisdiction to be unenforceable because it extends for
too long a period of time or over too great a range of activities or in too
broad a geographic area, it shall be interpreted to extend only over the maximum
period of time, range of activities or geographic area as to which it may be
enforceable.
(c) The restrictions contained in this Section 5 are necessary
for the protection of the business and goodwill of the Company and are
considered by the Employee to be reasonable for such purpose. The Employee
agrees that any breach of this Section 5 will cause the Company substantial and
irrevocable damage and therefore, in the event of any such breach, in addition
to such other remedies which may be available, the Company shall have the right
to seek specific performance and injunctive relief.
6. NOTICES. All notices required or permitted under this
Agreement shall be in writing and shall be deemed effective upon personal
delivery or upon deposit in the United States Post Office, by registered or
certified mail, postage prepaid, addressed to the other party at the address
shown above, or at such other address or addresses as either party shall
designate to the other in accordance with this Section 6.
7. PRONOUNS. Whenever the context may require, any pronouns used
in this Agreement shall include the corresponding masculine, feminine or neuter
forms, and the singular forms of nouns and pronouns shall include the plural,
and vice versa.
-7-
<PAGE> 8
8. ENTIRE AGREEMENT. This Agreement constitutes the entire
agreement between the parties and supersedes all prior agreements and
understandings, whether written or oral, relating to the subject matter of this
Agreement.
9. AMENDMENT. This Agreement may be amended or modified only by a
written instrument executed by both the Company and the Employee.
10. GOVERNING LAW. This Agreement shall be construed, interpreted
and enforced in accordance with the laws of the State of New Hampshire.
11. SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon
and inure to the benefit of both parties and their respective successors and
assigns, including any corporation with which or into which the Company may be
merged or which may succeed to its assets or business, provided, however, that
the obligations of the Employee are personal and shall not be assigned by him.
12. Miscellaneous.
-------------
12.1 No delay or omission by the Company in exercising any
right under this Agreement shall operate as a waiver of that or any other right.
A waiver or consent given by the Company on any one occasion shall be effective
only in that instance and shall not be construed as a bar or waiver of any right
on any other occasion.
12.2 The captions of the sections of this Agreement are for
convenience of reference only and in no way define, limit or affect the scope or
substance of any section of this Agreement.
-8-
<PAGE> 9
12.3 In case any provision of this Agreement shall be invalid,
illegal or otherwise unenforceable, the validity, legality and enforceability of
the remaining provisions shall in no way be affected or impaired thereby.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year set forth above.
SUMMA FOUR, INC.
By: /s/ John H. Shaw
-----------------------------------------
JOHN H. SHAW
Title: Vice President, Business
--------------------------------------
Development and Strategy
/s/ Barry Gorsun
--------------------------------------------
Chairman
-9-
<PAGE> 10
ATTACHMENT "A"
For the purposes of this Agreement, a change of control shall be deemed
to have occurred if at any shareholders' meeting fifty percent (50%) of the
total shares voting of the shares of the Company's common stock outstanding are
voted either directly or by proxy for a person or persons other than those
nominated by the Company's Board of Directors or if the individuals who, as of
the date hereof, constitute the Board of Directors of the Company, cease for any
reason to constitute at least a majority of the Board, provided that any person
becoming a director subsequent to the date hereof whose election or nomination
for election by the Company's shareholders was approved of by a vote of at least
a majority of the Directors then comprising the Board, shall be, for the
purposes of this Agreement, considered as though such person was a member of the
Board as of the date hereof.
-10-
<PAGE> 1
Exhibit 10.30
EMPLOYMENT AGREEMENT
--------------------
THIS EMPLOYMENT AGREEMENT (the "Agreement"), made this 23rd day of
July, 1996, is entered into by Summa Four, Inc., a New Hampshire corporation
with its principal place of business at Manchester, New Hampshire (the
"Company"), and Michael Hluchyj (the "Employee").
The Company desires to employ the Employee, and the Employee desires to
be employed by the Company. In consideration of the mutual covenants and
promises contained herein, and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged by the parties hereto,
the parties agree as follows:
1. EMPLOYMENT AT WILL. The Company hereby agrees to employ the Employee
as an employee at will, and the Employee hereby accepts such employment with the
Company, upon the terms set forth in this Agreement, for the period commencing
on July 1, 1996 (the "Commencement Date") and ending on the date the Employee's
employment is terminated in accordance with the provisions of Section 4 (such
period, the "Employment Period").
2. TITLE; CAPACITY. The Employee shall serve as Vice President, Chief
Technology Office or in such other position as the Company or its Board of
Directors (the "Board") may determine from time to time. The Employee shall be
based at the Company's headquarters in Manchester, New Hampshire, or such place
or places in the continental United States as the Board shall reasonably
determine and the Employee shall agree. The Employee shall be subject to the
supervision of, and shall
<PAGE> 2
have such authority as is delegated to him by, the Board or such officer of the
Company as may be designated by the Board.
The Employee hereby accepts such employment and agrees to undertake the
duties and responsibilities inherent in such position and such other duties and
responsibilities as the Board or its designee shall from time to time reasonably
assign to him. The Employee agrees to devote his entire business time, attention
and energies to the business and interests of the Company during the Employment
Period. The Employee agrees to abide by the rules, regulations, instructions,
personnel practices and policies of the Company and any changes therein which
may be adopted from time to time by the Company. The Employee acknowledges
receipt of copies of all such rules and policies committed to writing as of the
date of this Agreement.
3. Compensation and Benefits.
-------------------------
3.1 SALARY. The Company shall pay the Employee, in bi-weekly
installments, an annual base salary of $150,000 (less applicable state and
federal taxes) for the period commencing on the Commencement Date and ending
March 31, 1997, subject to adjustment thereafter as determined annually by the
Board at its first regular meeting following its receipt of the Company's
audited financial results for its preceding fiscal year.
3.2 BONUS. For such period ending March 31, 1997, the Employee
shall be eligible for a bonus of up to 40% of his current base salary based on
the achievement of certain goals approved by the Company's Compensation
Committee.
-2-
<PAGE> 3
Half of the bonus shall be based on the satisfaction of personal objectives and
the other half shall be based on the satisfaction of corporate objectives for
the Company's fiscal year then ending, as determined by the Company's management
and approved by its Board of Directors. If either the Employee's personal
objectives or corporate objectives are satisfied, the Employee shall receive
that portion of his bonus related to the satisfaction of either of those
objectives without regard to whether the other is satisfied. In order for the
Employee to be entitled to payment of his bonus, he must be actively employed on
the date the bonus is paid. For periods thereafter, the Employee shall be
entitled to participate in such bonus programs, if any, as may be established
from time to time by its Board of Directors.
3.3 FRINGE BENEFITS. The Employee shall be entitled to
participate in all bonus and benefit programs that the Company establishes and
makes available to its employees, if any, to the extent that Employee's
position, tenure, salary, age, health and other qualifications make him eligible
to participate, and to vacations in accordance with the Company's vacation
policy.
3.4 REIMBURSEMENT OF EXPENSES. The Company shall reimburse the
Employee for all gasoline used by the Employee in one automobile owned or leased
by him and for reasonable travel, entertainment and other expenses incurred or
paid by the Employee in connection with, or related to, the performance of his
duties, responsibilities or services under this Agreement, upon presentation by
the Employee of documentation, expense statements, vouchers and/or such other
supporting information as the Company may request, PROVIDED, HOWEVER, that (i)
the amount
-3-
<PAGE> 4
available for such travel, entertainment and other expenses may be fixed in
advance by senior management or the Board and (ii) amounts so reimbursed for
gasoline will be included in Employee's taxable income except as so documented
as a business expense.
3.5 STOCK OPTION. At the Board's July 19, 1996 meeting, the
Employee shall be granted an incentive stock option to purchase 17,500 shares of
the Company's common stock under its 1993 Stock Incentive Plan (the "Plan").
This new grant shall be in addition to all pre-existing grants. The new option
to purchase 17,500 shares shall vest one-third on July 19, 1997, one-third on
July 19, 1998 and one-third on July 19, 1999. Stock options granted may be
exercised by the Employee, to the extent vested, in accordance with the terms of
the Plan.
4. EMPLOYMENT TERMINATION WITHOUT CAUSE. The Employee shall have
the status of an employee at will. The Company may terminate the Employee's
employment at any time without cause. The Employee has no obligation to remain
employed by the Company and may terminate his employment at any time.
4.1 TERMINATION FOR CAUSE. In the event the Employee's
employment is terminated for cause the Company shall pay to the Employee the
compensation and benefits otherwise payable to him under Section 3 through the
last day of his actual employment by the Company. For purposes of this
Agreement, "cause" for termination shall be deemed to exist upon (a) a good
faith finding by the Company of failure of the Employee to perform his assigned
duties for the Company, dishonesty, gross negligence or misconduct, or (b) the
conviction of the Employee of,
-4-
<PAGE> 5
or the entry of a pleading of guilty or nolo contendere by the Employee to, any
crime involving moral turpitude or any felony.
4.2 TERMINATION FOR DEATH OR DISABILITY. If the Employee's
employment is terminated by death or because of disability, the Company shall
pay to the estate of the Employee or to the Employee, as the case may be, the
compensation which would otherwise be payable to the Employee up to the end of
the month in which the termination of his employment because of death or
disability occurs. For purposes of this Agreement, the term "disability" shall
mean the inability of the Employee, due to a physical or mental disability, for
a period of 90 days, whether or not consecutive, during any 360-day period to
perform the services contemplated under this Agreement. A determination of
disability shall be made by a physician satisfactory to both the Employee and
the Company, PROVIDED THAT if the Employee and the Company do not agree on a
physician, the Employee and the Company shall each select a physician and these
two together shall select a third physician, whose determination as to
disability shall be binding on all parties.
4.3 TERMINATION BY THE COMPANY OTHER THAN FOR CAUSE. If the
Employee's employment is terminated by the Company for any reason other than for
cause, the Company shall continue paying the Employee's base salary, after the
Employee's termination of employment, for up to six (6) months (the "Severance
Benefit"). Payment of the Severance Benefit shall cease upon the earlier of (a)
the date six (6) months after the Employee's date of termination, or (b) the
date the
-5-
<PAGE> 6
Employee begins employment with another employer (or is re-employed by the
Company).
4.4 TERMINATION FOLLOWING CHANGE IN CONTROL. If the Employee's
employment is terminated by the Company for any reason within one year after a
change in control, the Company shall continue paying the Employee's base salary,
after the Employee's termination of employment, for up to twelve (12) months
(the "Severance Benefit"). Payment of the Severance Benefit shall cease upon the
earlier of (a) the first anniversary of the Employee's date of termination, or
(b) the date the Employee begins employment with another employer (or is
re-employed by the Company). For the purposes of this paragraph, a change in
control is defined as provided for in Attachment "A."
5. Non-Compete.
-----------
(a) During the Employment Period and for a period of twelve
(12) months after the Employee's termination of employment for any reason, the
Employee will not directly or indirectly:
(i) as an individual proprietor, partner, stockholder,
officer, employee, director, joint venturer, investor, lender, consultant or in
any other capacity whatsoever (other than as the holder of not more than one
percent (1%) of the total outstanding stock of a publicly held company), render
any services to any business engaged in the design, manufacture or sale of
programmable switches (including, without limitation, Excel), or to any
non-legacy manufacturer of voice circuit switches (including, without
limitation, Sattel) or any major original
-6-
<PAGE> 7
equipment manufacturer customers of Excel (including, without limitation, Boston
Technology, Glenayre or AccessLine); or
(ii) recruit, solicit or induce, or attempt to induce, any
employee or employees of the Company to terminate their employment with, or
otherwise cease their relationship with, the Company; or
(iii) solicit, divert or take away, or attempt to divert or
to take away, the business or patronage of any of the clients, customers or
accounts, or prospective clients, customers or accounts, of the Company which
were contacted, solicited or served by the Employee while employed by the
Company.
(b) If any restriction set forth in this Section 5 is
found by any court of competent jurisdiction to be unenforceable because it
extends for too long a period of time or over too great a range of activities or
in too broad a geographic area, it shall be interpreted to extend only over the
maximum period of time, range of activities or geographic area as to which it
may be enforceable.
(c) The restrictions contained in this Section 5 are
necessary for the protection of the business and goodwill of the Company and are
considered by the Employee to be reasonable for such purpose. The Employee
agrees that any breach of this Section 5 will cause the Company substantial and
irrevocable damage and therefore, in the event of any such breach, in addition
to such other remedies which may be available, the Company shall have the right
to seek specific performance and injunctive relief.
-7-
<PAGE> 8
6. NOTICES. All notices required or permitted under this Agreement
shall be in writing and shall be deemed effective upon personal delivery or upon
deposit in the United States Post Office, by registered or certified mail,
postage prepaid, addressed to the other party at the address shown above, or at
such other address or addresses as either party shall designate to the other in
accordance with this Section 6.
7. PRONOUNS. Whenever the context may require, any pronouns used in
this Agreement shall include the corresponding masculine, feminine or neuter
forms, and the singular forms of nouns and pronouns shall include the plural,
and vice versa.
8. ENTIRE AGREEMENT. This Agreement constitutes the entire agreement
between the parties and supersedes all prior agreements and understandings,
whether written or oral, relating to the subject matter of this Agreement.
9. AMENDMENT. This Agreement may be amended or modified only by a
written instrument executed by both the Company and the Employee.
10. GOVERNING LAW. This Agreement shall be construed, interpreted and
enforced in accordance with the laws of the State of New Hampshire.
11. SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and
inure to the benefit of both parties and their respective successors and
assigns, including any corporation with which or into which the Company may be
merged or which may succeed to its assets or business, provided, however, that
the obligations of the Employee are personal and shall not be assigned by him.
-8-
<PAGE> 9
12. Miscellaneous.
-------------
12.1 No delay or omission by the Company in exercising any
right under this Agreement shall operate as a waiver of that or any other right.
A waiver or consent given by the Company on any one occasion shall be effective
only in that instance and shall not be construed as a bar or waiver of any right
on any other occasion.
12.2 The captions of the sections of this Agreement are for
convenience of reference only and in no way define, limit or affect the scope or
substance of any section of this Agreement.
12.3 In case any provision of this Agreement shall be invalid,
illegal or otherwise unenforceable, the validity, legality and enforceability of
the remaining provisions shall in no way be affected or impaired thereby.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year set forth above.
SUMMA FOUR, INC.
By: /s/ Barry Gorsun
-----------------------------------------
Title: Chairman
--------------------------------------
/s/ MICHAEL HLUCHYJ
--------------------------------------------
MICHAEL HLUCHYJ
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<PAGE> 10
ATTACHMENT "A"
For the purposes of this Agreement, a change of control shall be deemed
to have occurred if at any shareholders' meeting fifty percent (50%) of the
total shares voting of the shares of the Company's common stock outstanding are
voted either directly or by proxy for a person or persons other than those
nominated by the Company's Board of Directors or if the individuals who, as of
the date hereof, constitute the Board of Directors of the Company, cease for any
reason to constitute at least a majority of the Board, provided that any person
becoming a director subsequent to the date hereof whose election or nomination
for election by the Company's shareholders was approved of by a vote of at least
a majority of the Directors then comprising the Board, shall be, for the
purposes of this Agreement, considered as though such person was a member of the
Board as of the date hereof.
-10-
<PAGE> 1
Exhibit 10.31
EMPLOYMENT AGREEMENT
--------------------
THIS EMPLOYMENT AGREEMENT (the "Agreement"), made this 22nd day of
July, 1996, is entered into by Summa Four, Inc., a New Hampshire corporation
with its principal place of business at Manchester, New Hampshire (the
"Company"), and Kendrick Estey (the "Employee").
The Company desires to employ the Employee, and the Employee desires to
be employed by the Company. In consideration of the mutual covenants and
promises contained herein, and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged by the parties hereto,
the parties agree as follows:
1. EMPLOYMENT AT WILL. The Company hereby agrees to employ the Employee
as an employee at will, and the Employee hereby accepts such employment with the
Company, upon the terms set forth in this Agreement, for the period commencing
on July 1, 1996 (the "Commencement Date") and ending on the date the Employee's
employment is terminated in accordance with the provisions of Section 4 (such
period, the "Employment Period").
2. TITLE; CAPACITY. The Employee shall serve as Senior Vice President,
Operations or in such other position as the Company or its Board of Directors
(the "Board") may determine from time to time. The Employee shall be based at
the Company's headquarters in Manchester, New Hampshire, or such place or places
in the continental United States as the Board shall reasonably determine and the
Employee shall agree. The Employee shall be subject to the supervision of, and
shall have such authority as is delegated to him by, the Board or such officer
of the Company as may be designated by the Board.
<PAGE> 2
The Employee hereby accepts such employment and agrees to undertake the
duties and responsibilities inherent in such position and such other duties and
responsibilities as the Board or its designee shall from time to time reasonably
assign to him. The Employee agrees to devote his entire business time, attention
and energies to the business and interests of the Company during the Employment
Period. The Employee agrees to abide by the rules, regulations, instructions,
personnel practices and policies of the Company and any changes therein which
may be adopted from time to time by the Company. The Employee acknowledges
receipt of copies of all such rules and policies committed to writing as of the
date of this Agreement.
3. Compensation and Benefits.
-------------------------
3.1 SALARY. The Company shall pay the Employee, in bi-weekly
installments, an annual base salary of $160,000 (less applicable state and
federal taxes) for the period commencing on the Commencement Date and ending
March 31, 1997, subject to adjustment thereafter as determined annually by the
Board at its first regular meeting following its receipt of the Company's
audited financial results for its preceding fiscal year.
3.2 BONUS. For such period ending March 31, 1997, the Employee
shall be eligible for a bonus of up to 40% of his current base salary based on
the achievement of certain goals with half of the bonus based on the
satisfaction of personal objectives and the other half based on the satisfaction
of corporate objectives for the Company's fiscal year then ending, as determined
by the Company's management and approved by its Board of Directors. If either
the Employee's personal objectives or corporate
-2-
<PAGE> 3
objectives are satisfied, the Employee shall receive that portion of his bonus
related to the satisfaction of either of those objectives without regard to
whether the other is satisfied. In order for the Employee to be entitled to
payment of his bonus, he must be actively employed by the Company on the date
the bonus is paid. For periods thereafter, the Employee shall be entitled to
participate in such bonus programs, if any, as may be established from time to
time by its Board of Directors.
3.3 FRINGE BENEFITS. The Employee shall be entitled to
participate in benefit programs that the Company establishes and makes available
to its employees, if any, to the extent that Employee's position, tenure,
salary, age, health and other qualifications make him eligible to participate,
and to vacations in accordance with the Company's vacation policy.
3.4 REIMBURSEMENT OF EXPENSES. The Company shall reimburse the
Employee for all gasoline used by the Employee in one automobile owned or leased
by him and for reasonable travel, entertainment and other expenses incurred or
paid by the Employee in connection with, or related to, the performance of his
duties, responsibilities or services under this Agreement, upon presentation by
the Employee of documentation, expense statements, vouchers and/or such other
supporting information as the Company may request, PROVIDED, HOWEVER, that (i)
the amount available for such travel, entertainment and other expenses may be
fixed in advance by senior management or the Board and (ii) amounts so
reimbursed for gasoline will be included in Employee's taxable income except as
so documented as a business expense.
-3-
<PAGE> 4
3.5 STOCK OPTION. At the Board's July 19, 1996 meeting, the
Employee shall be granted an incentive stock option to purchase 31,000 shares of
the Company's common stock under its 1993 Stock Incentive Plan (the "Plan").
This new grant shall be in addition to all pre-existing grants. The new option
to purchase 31,000 shares shall vest one-third on July 19, 1997, one-third on
July 19, 1998 and one-third on July 19, 1999. Stock options granted may be
exercised by the Employee, to the extent vested, in accordance with the terms of
the Plan.
3.6 APARTMENT RENTAL. The Company shall continue to pay rent
on the Employee's apartment located in Manchester, New Hampshire through the
earlier of (a) May 31, 1998 or (b) the Employee's termination of employment.
4. EMPLOYMENT TERMINATION WITHOUT CAUSE. The Employee shall have
the status of an employee at will. The Company may terminate the Employee's
employment at any time without cause. The Employee has no obligation to remain
employed by the Company and may terminate his employment at any time.
4.1 TERMINATION FOR CAUSE. In the event the Employee's
employment is terminated for cause the Company shall pay to the Employee the
compensation and benefits otherwise payable to him under Section 3 through the
last day of his actual employment by the Company. For purposes of this
Agreement, "cause" for termination shall be deemed to exist upon (a) a good
faith finding by the Company of failure of the Employee to perform his assigned
duties for the Company, dishonesty, gross negligence or misconduct, or (b) the
conviction of the Employee of, or the entry of a pleading of
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<PAGE> 5
guilty or nolo contendere by the Employee to, any crime involving moral
turpitude or any felony.
4.2 TERMINATION FOR DEATH OR DISABILITY. If the Employee's
employment is terminated by death or because of disability, the Company shall
pay to the estate of the Employee or to the Employee, as the case may be, the
compensation which would otherwise be payable to the Employee up to the end of
the month in which the termination of his employment because of death or
disability occurs. For purposes of this Agreement, the term "disability" shall
mean the inability of the Employee, due to a physical or mental disability, for
a period of 90 days, whether or not consecutive, during any 360-day period to
perform the services contemplated under this Agreement. A determination of
disability shall be made by a physician satisfactory to both the Employee and
the Company, PROVIDED THAT if the Employee and the Company do not agree on a
physician, the Employee and the Company shall each select a physician and these
two together shall select a third physician, whose determination as to
disability shall be binding on all parties.
4.3 TERMINATION BY THE COMPANY OTHER THAN FOR CAUSE. If the
Employee's employment is terminated by the Company for any reason other than for
cause, the Company shall continue paying the Employee's base salary, after the
Employee's termination of employment, for up to twelve (12) months (the
"Severance Benefit"). Payment of the Severance Benefit shall cease upon the
earlier of (a) the first anniversary of the Employee's date of termination, or
(b) the date the Employee begins employment with another employer (or is
re-employed by the Company).
-5-
<PAGE> 6
4.4 TERMINATION FOLLOWING CHANGE IN CONTROL. If the Employee's
employment is terminated by the Company for any reason other than cause within
one year after a change in control, the Company shall continue paying the
Employee's base salary, after the Employee's termination of employment, for up
to twelve (12) months (the "Severance Benefit"). Payment of the Severance
Benefit shall cease upon the earlier of (a) the first anniversary of the
Employee's date of termination, or (b) the date the Employee begins employment
with another employer (or is re-employed by the Company). For the purposes of
this paragraph, a change in control is defined as provided for in Attachment
"A".
5. Non-Compete.
-----------
(a) During the Employment Period and for a period of
twelve (12) months after the Employee's termination of employment for any
reason, the Employee will not directly or indirectly:
(i) as an individual proprietor, partner, stockholder,
officer, employee, director, joint venturer, investor, lender, consultant or in
any other capacity whatsoever (other than as the holder of not more than one
percent (1%) of the total outstanding stock of a publicly held company), render
any services to any business engaged in the design, manufacture or sale of
programmable switches (including, without limitation, Excel), or to any
non-legacy switch manufacturer (including, without limitation, Sattel) or any
major original equipment manufacturer customers of Excel (including, without
limitation, Boston Technology, Glenayre or AccessLine); or
-6-
<PAGE> 7
(ii) recruit, solicit or induce, or attempt to induce, any
employee or employees of the Company to terminate their employment with, or
otherwise cease their relationship with, the Company; or
(iii) solicit, divert or take away, or attempt to divert or
to take away, the business or patronage of any of the clients, customers or
accounts, or prospective clients, customers or accounts, of the Company which
were contacted, solicited or served by the Employee while employed by the
Company.
(b) If any restriction set forth in this Section 5 is
found by any court of competent jurisdiction to be unenforceable because it
extends for too long a period of time or over too great a range of activities or
in too broad a geographic area, it shall be interpreted to extend only over the
maximum period of time, range of activities or geographic area as to which it
may be enforceable.
(c) The restrictions contained in this Section 5 are
necessary for the protection of the business and goodwill of the Company and are
considered by the Employee to be reasonable for such purpose. The Employee
agrees that any breach of this Section 5 will cause the Company substantial and
irrevocable damage and therefore, in the event of any such breach, in addition
to such other remedies which may be available, the Company shall have the right
to seek specific performance and injunctive relief.
6. NOTICES. All notices required or permitted under this
Agreement shall be in writing and shall be deemed effective upon personal
delivery or upon deposit in the United States Post Office, by registered or
certified mail, postage prepaid, addressed to
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<PAGE> 8
the other party at the address shown above, or at such other address or
addresses as either party shall designate to the other in accordance with this
Section 6.
7. PRONOUNS. Whenever the context may require, any pronouns used
in this Agreement shall include the corresponding masculine, feminine or neuter
forms, and the singular forms of nouns and pronouns shall include the plural,
and vice versa.
8. ENTIRE AGREEMENT. This Agreement constitutes the entire
agreement between the parties and supersedes all prior agreements and
understandings, whether written or oral, relating to the subject matter of this
Agreement.
9. AMENDMENT. This Agreement may be amended or modified only by a
written instrument executed by both the Company and the Employee.
10. GOVERNING LAW. This Agreement shall be construed, interpreted
and enforced in accordance with the laws of the State of New Hampshire.
11. SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon
and inure to the benefit of both parties and their respective successors and
assigns, including any corporation with which or into which the Company may be
merged or which may succeed to its assets or business, provided, however, that
the obligations of the Employee are personal and shall not be assigned by him.
12. Miscellaneous.
-------------
12.1 No delay or omission by the Company in exercising any
right under this Agreement shall operate as a waiver of that or any other right.
A waiver or consent given by the Company on any one occasion shall be effective
only in that instance and shall not be construed as a bar or waiver of any right
on any other occasion.
-8-
<PAGE> 9
12.2 The captions of the sections of this Agreement are for
convenience of reference only and in no way define, limit or affect the scope or
substance of any section of this Agreement.
12.3 In case any provision of this Agreement shall be invalid,
illegal or otherwise unenforceable, the validity, legality and enforceability of
the remaining provisions shall in no way be affected or impaired thereby.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year set forth above.
SUMMA FOUR, INC.
By: /s/ Barry Gorsun
-----------------------------------------
Title: Chairman
--------------------------------------
/s/ KENDRICK ESTEY
--------------------------------------------
KENDRICK ESTEY
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<PAGE> 10
ATTACHMENT "A"
For the purposes of this Agreement, a change of control shall be deemed
to have occurred if at any shareholders meeting fifty percent (50%) of the total
shares voting of the shares of the Company's common stock outstanding are voted
either directly or by proxy for a person or persons other than those nominated
by the Company's Board of Directors or if the individuals who, as of the date
hereof, constitute the Board of Directors of the Company, cease for any reason
to constitute at least a majority of the Board, provided that any person
becoming a director subsequent to the date hereof whose election or nomination
for election by the Company's shareholders was approved of by a vote of at least
a majority of the Directors then comprising the Board, shall be, for the
purposes of this Agreement, considered as though such person was a member of the
Board as of the date hereof.
-10-
<PAGE> 1
Exhibit 10.32
EMPLOYMENT AGREEMENT
--------------------
THIS EMPLOYMENT AGREEMENT (the "Agreement"), made this 18th day of October,
1996, is entered into by Summa Four, Inc., a Delaware corporation, with its
principal place of business at Manchester, New Hampshire (the "Company"), and
Todd P. Hasselbeck (the "Employee").
The Company desires to employ the Employee, and the Employee desires to be
employed by the Company. In consideration of the mutual covenants and promises
contained herein, and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged by the parties hereto, the parties
agree as follows:
1. EMPLOYMENT AT WILL. The Company hereby agrees to employ the Employee as
an employee at will, and the Employee hereby accepts such employment with the
Company, upon the terms set forth in this Agreement, for the period commencing
on November 4, 1996 (the "Commencement Date") and ending on the date the
Employee's employment is terminated in accordance with the provisions of Section
4 (such period, the "Employment Period").
2. TITLE, CAPACITY. The Employee shall serve as the Company's Vice
President, Sales, currently reporting to the President, or in such other more
senior or responsible position as the Company or its Board of Directors (the
"Board") may determine from time to time. The Employee shall be based at the
Company's headquarters in Manchester, New Hampshire, or such place or places in
the continental United States as the Board shall reasonably determine and the
Employee shall agree. The Employee shall be subject to the supervision of, and
shall have such
<PAGE> 2
authority as is delegated to him by, the Board or such officer of the Company as
may be designated by the Board.
The Employee hereby accepts such employment and agrees to undertake the
duties and responsibilities inherent in such position and such other duties and
responsibilities as the Board or its designee shall from time to time reasonably
assign to him. The Employee agrees to devote his entire business time, attention
and energies to the business and interests of the Company during the Employment
Period. The Employee agrees to abide by rules, regulations, instructions,
personnel practices and policies of the Company and any changes therein which
may be adopted from time to time by the Company.
3. Compensation and Benefits.
--------------------------
3.1 SALARY. The Company shall pay the Employee, in bi-weekly
installments, an annual base salary of $125,000 (less applicable state and
federal taxes) for the period commencing on the Commencement Date and ending
March 31, 1997, subject to adjustment thereafter as determined annually by the
Board at its first regular meeting following its receipt of the Company's
audited financial results for its preceding fiscal year.
3.2 BONUS. For such period ending March 31, 1997, the Employee shall
be eligible for a bonus of up to 40% of his current base salary (pro-rated for
the 3rd and 4th Quarter of FY'97) based on the achievement of certain goals with
half of the bonus based on the satisfaction of personal objectives and the other
half based on the satisfaction of corporate objectives for the Company's fiscal
year then ending, as
-2-
<PAGE> 3
determined by the Company's management and approved by its Board of Directors.
If either the Employee's personal objectives or corporate objectives are
satisfied, the Employee shall receive that portion of his bonus related to the
satisfaction of either of those objectives without regard to whether the other
is satisfied. In order for the Employee to be entitled to payment of his bonus,
he must be actively employed by the Company on the date the bonus is paid. For
periods thereafter, the Employee shall be entitled to participate in such bonus
programs, if any, as may be established from time to time by its Board of
Directors. For the balance of FY'97 the Employee is able to earn additional
bonuses, as described in Attachment B, Compensation Plan for VP of Sales, which
will be reviewed and may be adjusted annually by the Board.
3.3 FRINGE BENEFITS. The Employee shall be entitled to participate in
all benefit programs that the Company establishes and makes available to its
employees, if any, to the extent that Employee's position, tenure, salary, age,
health and other qualifications make him eligible to participate, and to
vacations in accordance with the Company's vacation policy.
3.4 REIMBURSEMENT OF EXPENSES. The Company shall reimburse the
Employee for all gasoline used by the Employee in one automobile owned or leased
by him and for reasonable travel, entertainment and other expenses incurred, per
the Company's Travel and Entertainment Policy, or paid by the Employee in
connection with, or related to, the performance of his duties, responsibilities
or services under this Agreement, as more fully described in section 12.5.3,
upon presentation by the Employee of documentation, expense statements, vouchers
and/or such other
-3-
<PAGE> 4
supporting information as the Company may request, provided, however, that (i)
the amount available for such travel, entertainment and other expenses may be
fixed in advance by senior management or the Board and (ii) amounts so
reimbursed for gasoline will be included in Employee's taxable income except as
so documented as a business expense.
3.5 STOCK OPTION. Subject to Board approval, the Employee shall be
granted an incentive stock option to purchase 45,000 shares of the Company's
common stock under its 1993 Stock Incentive Plan (the "Plan"). The option price
shall be the closing price on Employee's first day of employment. The option to
purchase 45,000 shares shall vest over five years at 20% per year. If, in the
future, the Board votes to shorten the vesting schedule for Officers generally,
then any of the Employee's unvested shares would fall under the new, more
favorable vesting schedule. Stock options granted may be exercised by the
Employee, to the extent vested in accordance with the terms of the Plan.
Additionally, the vesting shall convert to a three-year vesting schedule, based
on 100% achievement of the revenue plan. Achievement of 100% of the revenue plan
for the 3rd and 4th Quarters of FY'97 converts 7,500 shares to three-year
vesting, achievement of 100% in FY'98 converts 22,500 shares, achievement of
100% in FY'99 converts 15,000 shares to a three-year vesting schedule. If, after
completing six months of service, Employee's employment is involuntarily
terminated by the Company for any reason other than "Cause," any unvested
shares, which would have otherwise vested within 12 months of such involuntary
termination, shall vest immediately.
-4-
<PAGE> 5
4. EMPLOYMENT TERMINATION WITHOUT CAUSE. The Employee shall have the status
of an employee at will. The Company may terminate the Employee's employment at
any time without cause. The Employee has no obligation to remain employed by the
Company and may terminate his employment at any time.
4.1 TERMINATION FOR CAUSE. In the event the Employee's employment is
terminated for cause the Company shall pay to the Employee the compensation and
benefits otherwise payable to him under Section 3 through the last day of his
actual employment by the Company. For purposes of this Agreement, "cause" for
termination shall be deemed to exist upon (a) alcohol or drug abuse affecting
the performance of your duties, theft, embezzlement, fraud, absenteeism,
dishonesty, gross negligence or misconduct, or (b) the conviction of the
Employee of, or the entry of a pleading of guilty or nolo contendere by the
Employee to, any crime involving moral turpitude or any felony.
4.2 TERMINATION FOR DEATH OR DISABILITY. If the Employee's employment
is terminated by death or because of disability, the Company shall pay to the
estate of the Employee or to the Employee, as the case may be, the compensation
which would otherwise be payable to the Employee up to the end of the month in
which the termination of his employment because of death or disability occurs,
as well as any benefits due Employee under the benefits programs, e.g., life
insurance. For purposes of this Agreement, the term "disability" shall mean the
inability of the Employee, due to a physical or mental disability, for a period
of 90 days, whether or not consecutive, during any 360-day period to perform the
services
-5-
<PAGE> 6
contemplated under this Agreement. A determination of disability shall be made
by a physician satisfactory to both the Employee and the Company, PROVIDED THAT
if the Employee and the Company do not agree on a physician, the Employee and
the Company shall each select a physician and these two together shall select a
third physician, whose determination as to disability shall be binding on all
parties.
4.3 TERMINATION BY THE COMPANY OTHER THAN FOR CAUSE. If the Employee's
employment is terminated by the Company for any reason other than for cause, the
Company shall continue paying the Employee's current base salary and insurance
benefits, after the Employee's termination of employment, for up to twelve (12)
months (the "Severance Benefit"). Payment of the Severance Benefit shall cease
upon the earlier of (a) the first anniversary of the Employee's date of
termination, or (b) the date the Employee begins employment with another
employer (or is re-employed by the Company).
4.4 TERMINATION FOLLOWING CHANGE IN CONTROL. If the Employee's
employment is terminated by the Company for any reason other than cause within
one year after a change in control, or the Employee experiences a substantial
diminution in the nature or status of his responsibilities from those set forth
in his job description, and the Employee chooses to terminate employment, the
Company shall continue paying the Employee's current base salary and benefits,
after the Employee's termination of employment, for up to twelve (12) months
(the "Severance Benefit"). Payment of the Severance Benefit shall cease upon the
earlier of (a) the first anniversary of the Employee's date of termination, or
(b) the date the Employee
-6-
<PAGE> 7
begins employment with another employer (or is re-employed by the Company). In
the event of change of control, the Employee's unvested shares shall vest
immediately, in accordance with section 16 of the Company's 1995 stock plan. For
the purposes of this paragraph, a change in control is defined as provided for
in Attachment "A."
5. Non-Compete.
-----------
(a) During the Employment Period and for a period of twelve (12)
months after the Employee's termination of employment for any reason, the
Employee will not knowingly directly or indirectly:
(i) as an individual proprietor, partner, stockholder, officer,
employee, director, joint venturer, investor, lender, consultant or in any other
capacity whatsoever, render any services to Excel or Sattel; or
(ii) recruit, solicit or induce, or attempt to induce, any employee or
employees of the Company to terminate their employment with, or otherwise cease
their relationship with, the Company; or
(iii) solicit, divert or take away, or attempt to divert or to take
away, the business or patronage of any of the clients, customers or accounts, or
prospective clients, customers or accounts, of the Company which were contacted,
solicited or served by the Employee while employed by the Company.
(b) If any restriction set forth in this Section 5 is found by any
court of competent jurisdiction to be unenforceable because it extends for too
long a period of time or over too great a range of activities or too broad a
geographic area, it shall
-7-
<PAGE> 8
be interpreted to extend only over the maximum period of time, range of
activities or geographic area as to which it may be enforceable.
(c) The restrictions contained in this Section 5 are necessary for the
protection of the business and goodwill of the Company and are considered by the
Employee reasonable for such purpose. The Employee agrees that any breach of
this Section 5 will cause the Company substantial and irrevocable damage and
therefore, in the event of any such breach, in addition to such other remedies
which may be available, the Company shall have the right to seek specific
performance and injunctive relief.
6. NOTICES. All notices required or permitted under this Agreement shall be
in writing and shall be deemed effective upon personal delivery or upon deposit
in the United States Post Office, by registered or certified mail, postage
prepaid, addressed to the other party at the address shown above, or at such
other address or addresses as either party shall designate to the other in
accordance with this Section 6.
7. PRONOUNS. Whenever the context may require, any pronouns used in this
Agreement shall include the corresponding masculine, feminine or neuter forms,
and the singular forms of nouns and pronouns shall include the plural, and vice
versa.
8. ENTIRE AGREEMENT. This Agreement constitutes the entire agreement
between the parties and supersedes all prior agreements and understandings,
whether written or oral, relating to the subject matter of this Agreement.
-8-
<PAGE> 9
9. AMENDMENT. This Agreement may be amended or modified only by a written
instrument executed by both the Company and the Employee.
10. GOVERNING LAW. This Agreement shall be construed, interpreted and
enforced in accordance with the laws of the State of New Hampshire.
11. SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and inure
to the benefit of both parties and their respective successors and assigns,
including any corporation with which or into which the Company may be merged or
which may succeed to its assets or business, provided, however, that the
obligations of the Employee are personal and shall not be assigned by him.
12. Miscellaneous.
--------------
12.1 No delay or omission by the Company in exercising any right under
this Agreement shall operate as a waiver of that or any right. A waiver or
consent given by the Company on any one occasion shall be effective only in that
instance and shall not be construed as a bar or waiver of any right on any other
occasion.
12.2 The captions of the sections of this Agreement are for
convenience of reference only and in no way define, limit or affect the scope or
substance of any section of this Agreement.
12.3 In case any provision of this Agreement shall be invalid, illegal
or otherwise unenforceable, the validity, legality and enforceability of the
remaining provisions shall in no way be affected or impaired thereby.
-9-
<PAGE> 10
12.4 The Employee shall be entitled to indemnification as an Officer
of the Company under the Company's bylaws and charter.
12.5 Duties and Responsibilities of the Vice President, Sales
12.5.1 In the course of fulfilling the duties as Vice President,
Sales, the Employee will have the responsibility and authority to
negotiate and approve the necessary commercial contracts, prices,
purchase orders, and Gross Margins, in order to achieve the desired
growth in sales. In these cases the normal practice will be to consult
with the other appropriate officers prior to approving commercial
conditions or prices which may differ from our standards. These
variations may include:
a. Product discount levels and volume purchase discounts.
b. Overall profit levels on large strategic deals with low
Margins as calculated over the full scope of the project.
c. Payment Terms.
d. Delivery Commitments.
e. Other special and creative sales incentives as may be
necessary to close sales and achieve the desired growth
rates.
12.5.2 The Employee will have the responsibility and authority
for developing the Annual Sales Compensation Plan and will have the
-10-
<PAGE> 11
flexibility to considerably improve the earnings potential (within the
overall scope of the expense budget and applicable Human Resources
Policies and Guidelines) in order to attract the best candidates and
retain the industry's top performers.
12.5.3 The Company will provide and/or reimburse reasonable
business communications and entertainment expenses including; Cellular
Phone, pager, business phone/fax line at residence, computer docking
station/printer at residence, other business and entertainment
expenses as is customary for a Vice President, Sales, and consistent
with the Company's T&E policy.
12.5.4 The Employee will have control over the hiring, promotion,
and organizational decisions within the Sales organization. This
includes the currently open positions in Sales. The Employee will seek
the advice of the President and other related or experienced
executives in arriving at these decisions and follow relevant Company
policies, procedures, and applicable laws.
12.5.6 The Employee will be responsible and compensated for all
revenues generated by all distribution channels managed by Sales. The
-11-
<PAGE> 12
Employee will also be responsible for developing and managing all
relationships for product distribution and resale, in cooperation and
with the assistance of the rest of the management team.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
day and year set forth above.
SUMMA FOUR, INC.
By: /s/ Edward C. Callahan
------------------------------------
Title: President and COO
---------------------------------
TODD P. HASSELBECK
/s/ Todd Hasselbeck
---------------------------------------
-12-
<PAGE> 13
ATTACHMENT "A"
For the purposes of this Agreement, a change of control shall be deemed to
have occurred if at any shareholders' meeting fifty percent (50%) of the total
shares voting of the shares of the Company's common stock outstanding are voted
either directly or by proxy for a person or persons other than those nominated
by the Company's Board of Directors or if the individuals who, as of the date
hereof, constitute the Board of Directors of the Company, cease for any reason
to constitute at least a majority of the Board, provided that any person
becoming a director subsequent to the date hereof whose election or nomination
for election by the Company's shareholders was approved of by a vote of at least
a majority of the Directors then comprising the Board, shall be, for the
purposes of this Agreement, considered as though such person was a member of the
Board as of the date hereof.
-13-
<PAGE> 14
Attachment B
<TABLE>
10/18/96 17:00
Compensation Plan for VP of Sales
<CAPTION>
Percentage of achievement
----------------------------------------------------------------------
Components Value 100 105 110 115 120
<S> <C> <C> <C> <C> <C> <C>
Base IB:
(paid quarterly) $ 125,000 $ 125,000 $ 125,000 $ 125,000 $ 125,000 $ 125,000
Revenue $ 24,000 $ 24,000 $ 26,400 $ 28,800 $ 31,200 $ 33,600
(1)
Margin $ 12,000 $ 12,000 $ 12,000 $ 12,000 $ 12,000 $ 12,000
(2)
Expenses $ 4,000 $ 4,000 $ 4,000 $ 4,000 $ 4,000 $ 4,000
(3)
Special $ 40,000 $ 8,000 $ 16,000 $ 24,000 $ 32,000 $ 40,000
Bonus(4)
MIB(5)(6) $ 50,000 $ 25,000 $ 31,250 $ 37,500 $ 43,750 $ 50,000
Annual(7) $ 255,000 $ 198,000 $ 214,650 $ 231,300 $ 247,950 $ 264,600
Options(8)(9) 45,000
Signing Bonus $ 20,000
</TABLE>
- --------------------------------------------------------------------
1. 50% of bonus at 75% of achievement; 2% more for every 1% more achieved; no
cap
2. Quarterly margin is "factory" margin, e.g. revenue less std cost, binary
result
3. Quarterly expenses: $1k per quarter for being with +-5% of plan
4. For achievement of revenue plan earned & paid quarterly in increments of 5%
starting at 100%, no cap
5. MIB means Management Incentive Plan
6. MIB 40% of base paid 50% on corporate revenues, 50% on personal goals,
based upon FY97 corp goals
7. Assumes 100% achievement of personal goals; results may vary
8. Strike price set by Board vote after offer accepted
9. Achievement of 100% of revenue in Q3 & Q4 FY97 converts 7500 shares of 3 yr
vesting, 100% in FY98 converts 22,500, and 100% in FY99 gets 15,000
<PAGE> 1
Exhibit 10.33
AGREEMENT
---------
THIS AGREEMENT is made and entered into effective the 16th day of November,
1996, by and between BARRY GORSUN, of 25 Sundial Avenue, Manchester, New
Hampshire 03103, (hereinafter referred to as "Executive"), and SUMMA FOUR, INC.
of 25 Sundial Avenue, Manchester, New Hampshire 03103, (hereinafter referred to
as the "Company").
RECITALS
--------
WHEREAS, Executive is a valued employee of the Company and is currently
Chairman, Chief Executive Officer, President and a member of the Board of
Directors of the Company;
WHEREAS, Executive desires to receive assurances concerning his continued
employment and the receipt of severance pay from the Company in the event of his
Resignation or Termination from the Company on grounds other than "for cause";
WHEREAS, the Company desires to secure Executive's services and provide
written severance pay assurances to Executive to induce him to continue his
service to the Company;
WHEREAS, the parties hereto desire to promote their mutual interests by
imposing certain restrictions and/or obligations on themselves.
NOW THEREFORE, in consideration of the mutual promises herein contained,
the parties hereto agree as follows:
1. EMPLOYMENT. Executive is employed as Chairman, Chief Executive Officer
and President for the period November 16, 1996 through January 1, 1997 or such
date as his successor as Chief
<PAGE> 2
- 2 -
Executive Officer and President begins employment ("Transition Date"). December
31, 1996. His salary during this period of time will remain at $19,750.00 per
month, prorated for any portion thereof, for an annual equivalent of
$237,000.00. However, the Company will pay additional compensation to reflect
Executive's increased responsibility equal to $136.98 per day from November 16,
1996 to the Transition Date paid at the time of his retirement as Chairman.
Effective on the Transition Date, Executive will retire from his positions
as Chief Executive Officer and President but shall remain Chairman and continue
as an employee of the Company. Effective on the Transition Date, his salary
shall be reduced to $15,625.00 per month for an annual equivalent of
$187,500.00. He shall continue in this position until the annual stockholders
meeting to be scheduled in July, 1997 at which time he will retire as Chairman
and an employee of the Company.
During the period from the Transition Date until the annual stockholders
meeting, Executive will perform those duties assigned to him by the Board of
Directors and/or Chief Executive Officer.
2. BOARD OF DIRECTORS MEMBERSHIP. Executive will continue as a member of
the Board of Directors until the next annual stockholders meeting and will be
nominated for reelection to the Board at that time. He will be considered an
outside director during the period of time he receives retirement compensation
payment under section 3 below. He will receive the normal
<PAGE> 3
- 3 -
compensation of an outside director for his services upon his reelection, but
will not receive stock options as a newly elected director as he is continuing
as a director. However, he will receive the annual grant of stock options to
outside directors beginning with the 1997 annual meeting.
3. RETIREMENT. Effective with his retirement on the date of the 1997 annual
stockholders meeting ("Retirement Date"), Executive shall begin to receive 18
months of retirement pay at the rate of $15,625.00 per month. During this time
period Executive will perform such consulting services as the Company shall
request up to a maximum of two (2) days a week.
4. RETIREMENT BENEFITS. Effective on the Retirement Date, the Compensation
Committee of the Board will accelerate vesting of Executive's stock options to
fully vest those options. The Compensation Committee will also vote to extend
Executive's existing life insurance, medical and dental insurance for a period
of three years from the Retirement Date. Continuation of disability insurance
coverage will be considered by the Committee at that time. On his Retirement
Date, Executive will receive payment for 240 hours of accrued carried over
vacation time plus any accrued and unused vacation for the period January 1,
1997 until his Retirement Date.
The Company will transfer ownership of the two facsimile machines, lap top
computer, pager and cellular telephone used by Executive to him effective on his
Retirement Date.
<PAGE> 4
- 4 -
5. SEVERANCE PAYMENTS. In the event that Executive's employment with the
Company is (a) terminated by the Company for any reason other than cause
("Termination"), Executive shall be entitled to receive monthly severance
payments from the Company for eighteen (18) months from the date of his
Termination, or (b) if Executive shall resign after a new President/Chief
Executive Officer has been appointed and at a time when he could not be
terminated for cause ("Resignation"), he shall be entitled to receive severance
payments from the Company for six (6) months from the date of his Resignation.
For purposes of this section, the monthly severance payments to be paid to
Executive shall be based upon his annual base salary with the Company as of the
date of Resignation or Termination. Additionally, in the event of Executive's
Resignation or Termination, the Company will maintain for a period of three (3)
years from the date of Resignation or Termination, then existing life, medical,
and dental insurance benefits. The Company will consider whether to continue
disability insurance coverage at the time of Executive's Resignation or
Termination.
6. BONUS PAYMENT. Executive shall not be entitled to payment of any bonus.
7. STOCK OPTIONS. In consideration of Executive's long years of service to
the Company, in the event of Executive's Resignation or Termination as provided
herein, all of Executive's outstanding unvested employee stock options shall
vest as of the
<PAGE> 5
- 5 -
date of Resignation or Termination.
Additionally, the Company will make available to Executive during calendar
1997 a loan to assist the Executive in exercising his options. The loan will be
for the additional income taxes payable as a result of exercising nonqualified
options due to expire in July, 1997 and for the amount of the purchase price of
the shares plus any alternative minimum tax occasioned by exercising and holding
the shares pursuant to exercise of incentive stock options. Executive will
execute a promissory note evidencing the loan, bearing interest at the
applicable Federal rate and payable at the earlier of one year from the date of
loan or the sale of any shares held by Executive as a result of the
aforementioned option exercises.
8. COMPANY DISCLAIMER OF LIABILITY. The Company's payment of severance pay
to Executive shall not in any way be construed as an admission by the Company
that it has acted wrongfully With respect to Executive, or that Executive has
any claims whatsoever against the Company, its officers, employees or agents.
9. RELEASE BY EXECUTIVE. In consideration of the Company's execution and
performance of its obligations under the Agreement, Executive does hereby
release, remise and forever discharge the Company, its successors, assigns,
officers, directors and employees from any and all causes of action, suit,
demand, and claims which arose against the Company during the time of or as a
result of Executive's employment with the Company of any nature whatsoever,
<PAGE> 6
- 6 -
known or unknown, suspected or unsuspected, including age, race, religion or
other forms of discrimination; or claims arising out of the Company's right to
terminate its employees; or claims for alleged personal injuries, emotional
distress and pain and suffering which arose out of Executive's employment with
the Company.
10. DEATH OR DISABILITY. Upon the death of Executive or Executive's total
disability as defined under the Company's disability insurance plan, Company
shall discontinue all of Executive's payments and benefits under this Agreement
and in lieu thereof shall make a lump sum payment to Executive's estate or
disabled Executive equal to six months of Executive's then existing salary.
11. GENERAL PROVISIONS. This Agreement sets forth the entire agreement
between the parties hereto, and fully supersedes any and all prior agreements
and understandings between the parties hereto pertaining to the subject matter
of this Agreement. This Agreement is made under the laws of the State of New
Hampshire and shall be construed according to New Hampshire law. This Agreement
may only be modified, amended or canceled by a written amendment signed by the
parties.
THE FOREGOING AGREEMENT INCLUDES A RELEASE OF ALL KNOWN AND UNKNOWN CLAIMS.
THE SIGNATURES BELOW ATTEST THAT THE PARTIES HAVE CAREFULLY READ THIS AGREEMENT.
<PAGE> 7
- 7 -
IN WITNESS WHEREOF, the parties have executed this Agreement on the day and
year first above-mentioned.
SUMMA FOUR, INC.
By: /s/ Edgar L. Brown, Jr. /S/ Barry Gorsun
------------------------------------ ------------------------------------
Its: BARRY GORSUN
<PAGE> 1
Exhibit 10.34
[Summa Four LOGO]
EMPLOYMENT AGREEMENT
--------------------
THIS EMPLOYMENT AGREEMENT (the "Agreement"), made this 21st day of
November, 1996, is entered into by Summa Four, Inc., a Delaware corporation with
its principal place of business at 25 Sundial Avenue, Manchester, New Hampshire
03103 (the "Company"), and Robert A. Degan of 438 Glen Road, Weston,
Massachusetts 02193 (the "Employee").
The Company desires to employ the Employee, and the Employee desires to
be employed by the Company. In consideration of the mutual covenants and
promises contained herein, and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged by the parties hereto,
the parties agree as follows:
1. EMPLOYMENT AT WILL. The Company hereby agrees to employ the Employee
as an employee at will, and the Employee hereby accepts such employment with the
Company, upon the terms set forth in this Agreement, for the period commencing
on January 2, 1997 (the "Commencement Date") and ending on the date the
Employee's employment is terminated in accordance with the provisions of Section
4 (such period, the "Employment Period").
2. TITLE; CAPACITY. The Employee shall serve as President and Chief
Executive Officer of the Company and shall continue as a member of the Company's
Board of Directors (the "Board"). The Employee shall be based at the Company's
headquarters in Manchester, New Hampshire, or such place or places in the
continental United States as the Board shall reasonably determine and the
Employee shall agree. The Employee shall be subject to the supervision of the
Board, and shall have such authority as is vested in such position under the
Company's by-laws and as may be delegated to him by the
<PAGE> 2
Board. The Employee hereby accepts such employment and agrees to undertake the
duties and responsibilities inherent in such position and such other duties and
responsibilities as the Board or its designee shall from time to time reasonably
assign to him. The Employee agrees to devote his entire business time, attention
and energies to the business and interests of the Company during the Employment
Period. The Employee agrees to abide by the rules, regulations, instructions,
personnel practices and policies of the Company and any changes therein which
may be adopted from time to time by the Company.
3. Compensation and Benefits.
--------------------------
3.1 SALARY. The Company shall pay the Employee, in bi-weekly
installments, an annual base salary of $225,000 annually (less applicable state
and federal taxes), subject to any increases as may be determined from time to
time by the Board.
3.2 BONUS. For the period beginning on the Commencement Date
and ending March 31, 1997, the Employee will be entitled to a bonus of $25,000,
payable on or before April 15, 1997. For each twelve month period ending on or
after March 31, 1998 during the Employment Period, the Employee shall be
eligible for a bonus of up to 40% of his current base salary based on the
achievement of certain goals with half of the bonus based on the satisfaction of
personal objectives and the other half based on the satisfaction of corporate
objectives for the Company's fiscal year then ending, as determined by the
Compensation Committee and approved by the Board. If either the Employee's
personal objectives or corporate objectives are satisfied, the Employee shall
-2-
<PAGE> 3
receive that portion of his bonus related to the satisfaction of either of those
objectives without regard to whether the other is satisfied.
3.3 FRINGE BENEFITS. The Employee shall be entitled to
participate in benefit programs that the Company establishes and makes available
to its employees, if any, to the extent that Employee's position, tenure,
salary, age, health and other qualifications make him eligible to participate,
and to vacations in accordance with the Company's vacation policy.
3.4 REIMBURSEMENT OF EXPENSES. The Company shall reimburse the
Employee for all gasoline used by the Employee in one automobile owned or leased
by him and for reasonable travel, entertainment and other expenses incurred or
paid by the Employee in connection with, or related to, the performance of his
duties, responsibilities or services under this Agreement, upon presentation by
the Employee of documentation, expense statements, vouchers and/or such other
supporting information as the Company may request, PROVIDED, HOWEVER, that (i)
the amount available for such travel, entertainment and other expenses may be
fixed in advance by the Compensation Committee or the Board and (ii) amounts so
reimbursed for gasoline will be included in Employee's taxable income except as
so documented as a business expense. If, prior to January 2, 1998, the Employee
relocates his principal residence to within a reasonable commuting distance of
the Company's Manchester, New Hampshire office, the Company will reimburse the
Employee for his relocation expenses to the extent provided for under the
Company's relocation policy as in effect on the date of this Agreement.
-3-
<PAGE> 4
3.5 STOCK OPTION. Effective as of the Commencement Date, the
Employee shall be granted an incentive stock option to purchase 125,000 shares
of the Company's common stock under its 1993 Stock Incentive Plan (the "Plan")
at the closing price on the Commencement Date. The option shall vest one-third
on the first anniversary, one-third on the second anniversary and one-third on
the third anniversary of the Commencement Date. The option may be exercised by
the Employee, to the extent vested, in accordance with the terms of the Plan.
3.6 APARTMENT RENTAL. Until such time (if any) as the Employee
relocates his principal residence as contemplated under Section 3.4, the Company
shall for its convenience and at its expense provide the Employee with the use
of an apartment within a reasonable commuting distance of Manchester.
4. EMPLOYMENT TERMINATION WITHOUT CAUSE. The Employee shall have
the status of an employee at will. The Company may terminate the Employee's
employment at any time without cause. The Employee has no obligation to remain
employed by the Company and may terminate his employment at any time.
4.1 TERMINATION FOR CAUSE. In the event the Employee's
employment is terminated for cause, the Company shall pay to the Employee the
compensation and benefits otherwise payable to him under Section 3 through the
last day of his actual employment by the Company. For purposes of this
Agreement, "cause" for termination shall be deemed to exist upon (a) a good
faith finding by the Company of the Employee's dishonesty, gross negligence or
gross misconduct, or (b) the conviction of the
-4-
<PAGE> 5
Employee of, or the entry of a pleading of guilty or NOLO CONTENDERE by the
Employee to, any crime involving moral turpitude or any felony.
4.2 TERMINATION FOR DEATH OR DISABILITY. If the Employee's
employment is terminated by death or because of disability, the Company shall
pay to the estate of the Employee or to the Employee, as the case may be, the
compensation which would otherwise be payable to the Employee up to the end of
the month in which the termination of his employment because of death or
disability occurs. For purposes of this Agreement, the term "disability" shall
mean the inability of the Employee, due to a physical or mental disability, for
a period of 90 days, whether or not consecutive, during any 360-day period to
perform the services contemplated under this Agreement. A determination of
disability shall be made by a physician satisfactory to both the Employee and
the Company, PROVIDED THAT if the Employee and the Company do not agree on a
physician, the Employee and the Company shall each select a physician and these
two together shall select a third physician, whose determination as to
disability shall be binding on all parties.
4.3 TERMINATION BY THE COMPANY OTHER THAN FOR CAUSE. If the
Employee's employment is terminated by the Company for any reason other than for
cause, the Company shall continue paying the Employee's base salary and
insurance benefits then in effect, after the Employee's termination of
employment, either for twenty-four (24) months, if such termination occurs prior
to January 2, 1998, or for twelve (12) months, if such termination occurs on or
after January 2, 1998, provided, nevertheless, that if the Employee begins
substantially full-time employment in an
-5-
<PAGE> 6
executive position with another employer (or is re-employed by the Company),
such payment shall terminate as of the date of such employment.
5. NON-COMPETE.
(a) During the Employment Period and for a period of
twelve (12) months after the Employee's termination of employment for any
reason, the Employee will not directly or indirectly:
(i) as an individual proprietor, partner, stockholder,
officer, employee, director, joint venturer, investor, lender, consultant or in
any other capacity whatsoever (other than as the holder of not more than one
percent (1%) of the total outstanding stock of a publicly held company), render
any services to any business engaged in the design, manufacture or sale of
programmable switches (including, without limitation, Excel), or to any
non-legacy switch manufacturer (including, without limitation, Sattel) or any
major original equipment manufacturer customer of Excel (including, without
limitation, Boston Technology, Glenayre or AccessLine); or
(ii) recruit, solicit or induce, or attempt to induce, any
employee or employees of the Company to terminate their employment with, or
otherwise cease their relationship with, the Company; or
(iii) solicit, divert or take away, or attempt to divert or
to take away, the business or patronage of any of the clients, customers or
accounts, or prospective clients, customers or accounts, of the Company which
were contacted, solicited or served by the Employee while employed by the
Company.
-6-
<PAGE> 7
(b) If any restriction set forth in this Section 5 is found by
any court of competent jurisdiction to be unenforceable because it extends for
too long a period of time or over too great a range of activities or in too
broad a geographic area, it shall be interpreted to extend only over the maximum
period of time, range of activities or geographic area as to which it may be
enforceable.
(c) The restrictions contained in this Section 5 are necessary
for the protection of the business and goodwill of the Company and are
considered by the Employee to be reasonable for such purpose. The Employee
agrees that any breach of this Section 5 will cause the Company substantial and
irrevocable damage and therefore, in the event of any such breach, in addition
to such other remedies which may be available, the Company shall have the right
to seek specific performance and injunctive relief.
6. NOTICES. All notices required or permitted under this
Agreement shall be in writing and shall be deemed effective upon personal
delivery or upon deposit in the United States Post Office, by registered or
certified mail, postage prepaid, addressed to the other party at the address
shown above, or at such other address or addresses as either party shall
designate to the other in accordance with this Section 6.
7. PRONOUNS. Whenever the context may require, any pronouns used
in this Agreement shall include the corresponding masculine, feminine or neuter
forms, and the singular forms of nouns and pronouns shall include the plural,
and vice versa.
-7-
<PAGE> 8
8. ENTIRE AGREEMENT. This Agreement constitutes the entire
agreement between the parties and supersedes all prior agreements and
understandings, whether written or oral, relating to the subject matter of this
Agreement.
9. AMENDMENT. This Agreement may be amended or modified only by a
written instrument executed by both the Company and the Employee.
10. GOVERNING LAW. This Agreement shall be construed, interpreted
and enforced in accordance with the laws of the State of New Hampshire.
11. SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon
and inure to the benefit of both parties and their respective successors and
assigns, including any corporation with which or into which the Company may be
merged or which may succeed to its assets or business, provided, however, that
the obligations of the Employee are personal and shall not be assigned by him.
12. Miscellaneous.
-------------
12.1 No delay or omission by the Company in exercising any
right under this Agreement shall operate as a waiver of that or any other right.
A waiver or consent given by the Company on any one occasion shall be effective
only in that instance and shall not be construed as a bar or waiver of any right
on any other occasion.
12.2 The captions of the sections of this Agreement are for
convenience of reference only and in no way define, limit or affect the scope or
substance of any section of this Agreement.
-8-
<PAGE> 9
12.3 In case any provision of this Agreement shall be invalid,
illegal or otherwise unenforceable, the validity, legality and enforceability of
the remaining provisions shall in no way be affected or impaired thereby.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year set forth above.
SUMMA FOUR, INC.
By: /s/ Barry Gorsun
-----------------------------------------
Title: Chairman
--------------------------------------
/s/ ROBERT A. DEGAN
--------------------------------------------
ROBERT A. DEGAN
-9-
<PAGE> 1
Exhibit 10.35
AMENDMENT TO EMPLOYMENT AGREEMENT
---------------------------------
NOW COME Barry R. Gorsun ("Executive") and Summa Four, Inc. ("Company"),
parties to an Employment Agreement dated November 16, 1996, and in consideration
of the mutual covenants and conditions contained herein, amend said Agreement as
follows:
1. By deleting from the first sentence of Section 4 the following... "and
will extend the exercise period for the options to one year from the Retirement
Date."
2. By adding a new paragraph to the end of Section 7 as follows:
"Additionally the Company will make available to Executive prior to
his Retirement Date, loan(s) up to a maximum amount of $500,000 to assist
the Executive in exercising his options. The loan(s) will be for (a) the
amount of his increased tax obligations incurred as a result of exercising
his non-qualified stock options due to expire July 22, 1997 and (b) the
amount of the purchase price plus any alternative minimum tax occassioned
by exercising his incentive stock options priced at $2.57 per share. Also
the Company extends to July 25, 1998 the time period for Executive to
exercise employee stock options issued July 22, 1994 and August 23, 1994."
3. In all other respects, said Employment Agreement shall remain in full
force and effect.
SUMMA FOUR, INC.
DATED: June 12, 1997 By: /s/ Edgar L. Brown, Jr.
------------------------------------
/s/ Barry Gorsun
---------------------------------------
BARRY R. GORSUN
<PAGE> 1
SUMMA FOUR, INC.
<TABLE>
EXHIBIT 11
COMPUTATION OF EARNINGS PER SHARE
YEARS ENDED MARCH 31, 1997, 1996 AND 1995
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Primary
Average shares outstanding of
Common Stock 5,951 6,175 6,195
Net effect of dilutive stock options -
based on the treasury stock method 166 213 377
------ ------ ------
Total 6,117 6,388 6,572
====== ====== ======
Net income $1,848 $3,765 $5,423
Per share amount $ .30 $ .59 $ .82
====== ====== ======
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Fully Diluted
Average shares outstanding of
Common Stock 5,951 6,175 6,195
Net effect of dilutive stock options -
based on the treasury stock method 170 225 391
------ ------ ------
Total 6,121 6,400 6,586
====== ====== ======
Net income $1,848 $3,765 $5,423
Per share amount $ .30 $ .59 $ .82
====== ====== ======
</TABLE>
39
<PAGE> 1
SUMMA FOUR, INC.
EXHIBIT 21
SUBSIDIARIES
<TABLE>
The following is a list of the Company's subsidiaries at March 31, 1997:
<CAPTION>
Percentage of Voting
Organized Securities Owned
Name Under Laws of By Summa Four, Inc.
- ---- ------------- -------------------
<S> <C> <C>
Summa Four Limited United Kingdom 100%
Summa Four International Barbados 100%
Summa Four Pte., Limited Singapore 100%
Summa Four, Japan, Inc. Delaware 100%
</TABLE>
40
<PAGE> 1
EXHIBIT 23
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the Registration Statements
of Summa Four, Inc. on Form S-8 (File Nos. 333-2596, 33-69614, 33-69616,
33-69618, 33-69620, and 33-69622) of our report dated May 5, 1997, on our
audits of the consolidated financial statements and financial statement
schedule of Summa Four, Inc. as of March 31, 1997 and 1996 and for the years
ended March 31, 1997, 1996 and 1995, which report is included in this Annual
Report on Form 10-K.
COOPERS & LYBRAND L.L.P.
Boston, Massachusetts
June 20, 1997
41
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
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