<PAGE> 1
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
FILED BY THE REGISTRANT [X] FILED BY A PARTY OTHER THAN THE REGISTRANT [ ]
- --------------------------------------------------------------------------------
Check the appropriate box:
[ ] Preliminary Proxy Statement
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to sec.240.14a-11(c) or sec.240.14a-12
[ ] Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
Summa Four, Inc.
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement)
PAYMENT OF FILING FEE (CHECK THE APPROPRIATE BOX):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
1) Title of each class of securities to which transaction applies:
2) Aggregate number of securities to which transaction applies:
3) Per unit price or other underlying value of transaction computed pursuant
to Exchange Act Rule 0-11 (Set forth the amount on which the filing fee
is calculated and state how it was determined):
4) Proposed maximum aggregate value of transaction:
5) Total fee paid:
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
2) Form, Schedule or Registration Statement No.:
3) Filing Party:
4) Date Filed:
- --------------------------------------------------------------------------------
<PAGE> 2
SUMMA FOUR, INC.
25 SUNDIAL AVENUE
MANCHESTER, NEW HAMPSHIRE 03103-7251
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON FRIDAY, JULY 25, 1997
The Annual Meeting of Stockholders of Summa Four, Inc. (the "Company") will
be held at the Nashua Marriott, 2200 Southwood Dr., Nashua, New Hampshire 03063
at 11:00 a.m., local time, to consider and act upon the following matters:
1. To elect six directors to serve for the ensuing year.
2. To ratify the selection of Coopers & Lybrand L.L.P. by the Board of
Directors as the Company's independent accountants for the current
fiscal year.
3. To transact such other business as may properly come before the meeting
or any adjournment thereof.
Stockholders of record at the close of business on June 6, 1997 will be
entitled to notice of and to vote at the meeting or any adjournment thereof. The
stock transfer books of the Company will remain open.
All stockholders are cordially invited to attend the meeting.
By Order of the Board of Directors,
PAUL C. SEMPLE
Secretary
Manchester, New Hampshire
June 25, 1997
WHETHER OR NOT YOU EXPECT TO ATTEND THE MEETING, PLEASE COMPLETE, DATE AND
SIGN THE ENCLOSED PROXY AND MAIL IT PROMPTLY IN THE ENCLOSED ENVELOPE IN ORDER
TO ENSURE REPRESENTATION OF YOUR SHARES. NO POSTAGE NEED BE AFFIXED IF THE PROXY
IS MAILED IN THE UNITED STATES.
<PAGE> 3
SUMMA FOUR, INC.
25 SUNDIAL AVENUE
MANCHESTER, NEW HAMPSHIRE 03103-7251
PROXY STATEMENT FOR THE ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON JULY 25, 1997
This Proxy Statement is furnished in connection with the solicitation of
proxies by the Board of Directors of Summa Four, Inc. (the "Company") for use at
the Annual Meeting of Stockholders to be held on July 25, 1997 and at any
adjournments of that meeting (the "Annual Meeting"). All proxies will be voted
in accordance with the stockholders' instructions, and if no choice is
specified, the proxies will be voted in favor of the matters set forth in the
accompanying Notice of Meeting. Any proxy may be revoked by a stockholder at any
time before its exercise by delivery of written revocation or a subsequently
dated proxy to the Secretary of the Company or by voting in person at the Annual
Meeting.
The Company's Annual Report to Stockholders for 1997 is being mailed to
stockholders concurrently with this Proxy Statement.
VOTING SECURITIES AND VOTES REQUIRED
At the close of business on June 6, 1997, the record date for the
determination of stockholders entitled to vote at the Annual Meeting, there were
outstanding and entitled to vote an aggregate of 5,629,331 shares of common
stock, $.01 par value per share, of the Company (the "Common Stock").
Stockholders are entitled to one vote per share.
The presence or representation of holders of a majority of the number of
shares of Common Stock issued, outstanding and entitled to vote at the Annual
Meeting constitutes a quorum for the transaction of business at the Annual
Meeting. Shares of Common Stock present in person or represented by proxy
(including shares which abstain or do not vote with respect to one or more of
the matters presented for stockholder approval) will be counted for purposes of
determining whether a quorum is present.
The affirmative vote of the holders of a plurality of the votes cast by the
stockholders entitled to vote at the Annual Meeting is required for the election
of directors. Additionally, the affirmative vote of the holders of a majority of
the shares of Common Stock present or represented and voting is required to
ratify the selection of Coopers & Lybrand L.L.P. as the Company's independent
accountants for the current fiscal year.
Shares which abstain from voting as to a particular matter and shares held
in "street name" by brokers or nominees who indicate on their proxies that they
do not have discretionary authority to vote such shares as to a particular
matter will not be counted as votes in favor of such matter and will also not be
counted as votes cast or shares voting on such matter.
<PAGE> 4
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information as of April 30, 1997,
with respect to the beneficial ownership of the Company's Common Stock by (i)
each person known by the Company to beneficially own more than 5% of the
outstanding shares of Common Stock, (ii) each director and each person nominated
to become a director of the Company, (iii) each executive officer of the Company
named in the Summary Compensation Table set forth under the caption "Executive
Compensation" below and (iv) all directors and executive officers of the Company
as a group:
<TABLE>
<CAPTION>
NUMBER OF PERCENTAGE OF
SHARES COMMON
BENEFICIALLY STOCK
BENEFICIAL OWNER OWNED(1) OUTSTANDING(2)
- -------------------------------------------------------------- ------------- ---------------
<S> <C> <C>
Kopp Investment Advisors Inc.(3).............................. 957,624 17.2%
T. Rowe Price Associates, Inc.(4)............................. 416,800 7.5%
State of Wisconsin Investment Board(5)........................ 375,700 6.8%
Edgar L. Brown, Jr.(6)........................................ 6,000 *
Edward C. Callahan, Jr.(7).................................... 100 *
Robert A. Degan(8)............................................ 12,400 *
Kendrick A. Estey(9).......................................... 9,000 *
Barry R. Gorsun(10)........................................... 181,235 *
Michael G. Hluchyj(11)........................................ 19,690 *
Russell I. Pillar(12)......................................... 1,400 *
Gordon T. Ray(13)............................................. 12,625 *
Thomas A. St. Germain(14)..................................... 83,500 *
William M. Scranton(15)....................................... 32,375 *
John A. Shane(16)............................................. 52,057 *
John H. Shaw(17).............................................. 13,185 *
Theresa Pratt Wang(18)........................................ 11,216 *
All directors and executive officers as a group (13 Persons)
(19)........................................................ 434,783 7.38%
</TABLE>
- ---------------
* Less than 1%
(1) The inclusion herein of any shares of Common Stock deemed beneficially
owned does not constitute an admission of beneficial ownership of such
shares. Any reference in the footnotes below to stock options held by the
person in question relates to stock options which are currently exercisable
or exercisable within 60 days after April 30, 1997.
(2) The number of shares deemed outstanding with respect to a named person
includes shares outstanding as of April 30, 1997 plus any shares subject to
options held by the person in question that are currently exercisable or
excisable within 60 days after April 30, 1997.
(3) The information reported is based on a Schedule 13G, dated December 31,
1996, filed with the Securities and Exchange Commission (the "Commission")
by Kopp Investment Advisors Inc.
(4) The information reported is based on a Schedule 13G, dated February 14,
1997, filed with the Commission by T. Rowe Price Associates, Inc.
(5) The information reported is based on a Schedule 13G, dated January 23,
1997, filed with the Commission by State of Wisconsin Investment Board.
(6) Mr. Brown is a director of the Company. Includes 3,900 shares issuable
pursuant to options exercisable within 60 days after April 30, 1997.
(7) Mr. Callahan resigned as President, Chief Operating Officer and a director
of the Company on November 15, 1996.
2
<PAGE> 5
(8) Mr. Degan is President, Chief Executive Officer and a director of the
Company. Includes 6,400 shares issuable pursuant to options exercisable
within 60 days after April 30, 1997.
(9) Mr. Estey resigned as Senior Vice President, Customer Satisfaction and
Operations of the Company on May 29, 1997. Represents 9,000 shares issuable
pursuant to options exercisable within 60 days after April 30, 1997.
(10) Mr. Gorsun is Chairman of the Board of Directors of the Company. Includes
146,235 shares issuable pursuant to options exercisable within 60 days
after April 30, 1997.
(11) Mr. Hluchyj is Vice President, Chief Technology Officer of the Company.
Includes 19,500 shares issuable pursuant to options exercisable within 60
days after April 30, 1997.
(12) Mr. Pillar is a director of the Company. Represents 1,400 shares issuable
pursuant to options exercisable within 60 days after April 30, 1997.
(13) Mr. Ray is a director of the Company. Includes 11,475 shares issuable
pursuant to options exercisable within 60 days after April 30, 1997.
(14) Mr. St. Germain is Senior Vice President and Chief Financial Officer of the
Company. Includes 81,000 shares issuable pursuant to stock options
exercisable within 60 days after April 30, 1997.
(15) Mr. Scranton is a director of the Company. Includes 12,875 shares issuable
pursuant to options exercisable within 60 days after April 30, 1997. Mr.
Scranton will not be standing for re-election to the Board of Directors of
the Company.
(16) Mr. Shane is a director of the Company. Includes 10,075 shares issuable
pursuant to options exercisable within 60 days after April 30, 1997.
(17) Mr. Shaw is a Vice President, Business Development and Planning of the
Company. Includes 5,200 shares issuable pursuant to options exercisable
within 60 days after April 30, 1997.
(18) Ms. Wang resigned as Vice President, Engineering on March 31, 1997.
Includes 7,500 shares issuable pursuant to options exercisable within 60
days after April 30, 1997.
(19) Includes an aggregate of 314,560 shares issuable pursuant to options
exercisable within 60 days after April 30, 1997.
ELECTION OF DIRECTORS
The persons named in the enclosed proxy will vote to elect as directors the
six nominees named below, unless authority to vote for the election of any or
all of the nominees is withheld by marking the proxy to that effect. Each of the
nominees currently serves as a director of the Company. All of the nominees have
indicated their willingness to serve, if elected, but if any of the nominees
should be unable or unwilling to serve, proxies may be voted for substitute
nominee(s) designated by the Board of Directors.
NOMINEES
Set forth below are the name, age, positions with the Company, principal
occupation and business experience during the past five years and the names of
other publicly-held corporations of which each of the nominees for election to
the Board of Directors of the Company serves as a director and the date when
each such person first became a director of the Company:
Mr. Barry R. Gorsun, 54, has been Chairman of the Board of Directors since
July 1993 and has been a director of the Company since July 1988. From July 1988
to July 1993, Mr. Gorsun was President of the Company and from July 1988 to
January 1997 he was Chief Executive Officer of the Company.
3
<PAGE> 6
Mr. Edgar L. Brown, Jr., 65, has been a director of the Company since
October 1995. Mr. Brown was President and Chief Executive Officer of Bell
Atlantic International from May 1992 to May 1995. From July 1988 to May 1992,
Mr. Brown was President of Europe Bell Atlantic International.
Mr. Robert A. Degan, 58, has served as a director of the Company since July
1984. Mr. Degan has been President and Chief Executive Officer since January
1997. From August 1996 to December 1996, Mr. Degan served as an Executive Vice
President of Sync Research, Inc., a data communications company. From April 1991
to August 1996, Mr. Degan served as a director, President and Chief Executive
Officer of TyLink, Corp., a data communications company.
Mr. Russell I. Pillar, 31, has served as a director of the Company since
March 1997. Mr. Pillar has been Managing Partner of Critical Mass, a venture
capital firm, since 1991. From December 1993 through October 1996, Mr. Pillar
was President, Chief Executive Officer and a director of Precision Systems,
Inc., a software development company. Mr. Pillar is also director of Telescan,
Inc. and a number of private corporations.
Mr. Gordon T. Ray, 69, has served as a director of the Company since May
1994. Mr. Ray has been President of Global Information Limited since October
1993. From October 1985 to September 1993, Mr. Ray was an Executive Vice
President of NEC America, Inc. and formerly served as a member of its board of
directors. Mr. Ray currently serves as a member of the Board of Directors of
Numerex Corp. Mr. Ray is also a member of the Board of Directors of the
Telephone Industry Association, member of the Electronics Industries Association
Board of Governors and a Fellow of the Royal Society of Arts, Manufacturing and
Commerce.
Mr. John A. Shane, 64, has served as a director of the Company since June
1976. Mr. Shane has been President of Palmer Service Corporation since its
organization in July 1972. Mr. Shane is a general partner of the Palmer Partners
L.P., the general partner of the Palmer Organization III L.P., a venture capital
partnership. Mr. Shane is also a director of Arch Communications Group, Inc.,
Eastern Bank Corp., Gensym Corporation, Overland Data, Inc. and United Asset
Management Corporation and is a trustee of the New England Funds Group.
BOARD AND COMMITTEE MEETINGS
The Company has a standing Audit Committee of the Board of Directors, which
reviews the Company's internal accounting control policies and procedures,
considers and recommends the selection of the Company's independent accountants,
reviews and approves any major accounting policy changes affecting the Company's
operating results and provides the opportunity for direct contact between the
Company's independent accountants and the Board. The Company's consolidated
financial statements are currently audited by Coopers & Lybrand L.L.P. The Audit
Committee met five times during fiscal 1997. The current members of the Audit
Committee are Messrs. Ray and Shane.
The Company has a standing Compensation Committee of the Board of
Directors, which provides recommendations to the Board regarding compensation
programs of the Company and has authority to grant stock options under the
Company's stock option and incentive plans to all officers, directors and
employees of the Company. The Compensation Committee also administers the
Company's 1993 Employee Stock Purchase Plan. The Compensation Committee met
seven times during fiscal 1997. The current members of the Compensation
Committee are Messrs. Brown and Scranton. Mr. Degan served on the Compensation
Committee until his resignation from such committee on December 31, 1996, prior
to becoming President and Chief Executive Officer of the Company.
The Company has a standing Directors Affairs Committee of the Board of
Directors, which establishes membership criteria, identifies, recruits and
nominates qualified candidates to serve on the Board of Directors
4
<PAGE> 7
and assesses the Board's performance. The Directors Affairs Committee met six
times in fiscal 1997. The current members of the Directors Affairs Committee are
Messrs. Gorsun, Ray and Shane.
The Board of Directors held ten meetings during fiscal 1997. Each director
attended at least 75% of the aggregate number of Board meetings and meetings
held by all committees on which he then served, except Mr. Degan who attended
67% of the aggregate number of Board meetings.
DIRECTOR COMPENSATION
The Company pays to all non-employee directors an annual fee of $10,000 and
a fee of $1,000 for each meeting attended and $1,500 per quarter for each
committee served on. The Company also reimburses all of its directors for their
out-of-pocket expenses incurred in the performance of their duties as directors
of the Company.
DIRECTOR STOCK OPTIONS
Each director who is not an employee of the Company receives an option to
purchase 7,000 shares of Common Stock upon his initial election to the Board
("Initial Options") and annually thereafter options to purchase 2,500 shares of
Common Stock ("Annual Options"). The exercise price of Initial Options and
Annual Options are equal to the fair market value of the Common Stock on the
date of grant. Initial Options vest immediately with respect to twenty percent
of the option grant with the remainder vesting in equal annual installments
commencing one year after the date of grant and Annual Options are fully
exercisable on the date of grant.
CERTAIN TRANSACTIONS
On June 16, 1997, the Company announced its intention to work with Dialogic
Corporation on a co-development and co-marketing arrangement to develop a fully
integrated, telco-capable, programmable switching platform based on industry
standard hardware and software. In order to facilitate the project, the Company
also entered into a joint development agreement with Junction, Inc.
("Junction"). Mr. Russell I. Pillar, a director of the Company, owns
approximately 40% of the outstanding capital stock of Junction.
MANAGEMENT
Executive Officers. The current executive officers of the Company are set
forth below:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------------ ---- -------------------------------------
<S> <C> <C>
Barry R. Gorsun............... 54 Chairman of the Board of Directors
Robert A. Degan............... 58 President, Chief Executive Officer
and Director
Thomas A. St. Germain......... 59 Senior Vice President, Chief
Financial Officer and Treasurer
Philip Coates................. 59 Vice President, International Sales
Todd P. Hasselbeck............ 41 Vice President, Sales
Michael G. Hluchyj............ 42 Vice President, Chief Technology
Officer
John H. Shaw.................. 39 Vice President, Business Development
and Planning
Richard Swee.................. 51 Vice President, Engineering
</TABLE>
Messrs. Gorsun and Degan have been nominated for election to the Board of
Directors at the Annual Meeting. See "Election of Directors -- Nominees."
5
<PAGE> 8
Mr. St. Germain has been Senior Vice President, Chief Financial Officer and
Treasurer of the Company since May 1993. From August 1984 to April 1993, Mr. St.
Germain was Senior Vice President, Chief Financial Officer, Treasurer and
Secretary of Vicor Corp., a power systems manufacturing company.
Mr. Coates has been Vice President, International Sales since May 1997.
From October 1993 to April 1997, Mr. Coates was Vice President and General
Manager of Summa Four Pte., Limited, a wholly owned subsidiary of the Company.
From 1985 to 1993, Mr. Coates was Director, Area Sales and Marketing Consulting
for Tandem Computers.
Mr. Hluchyj has been Vice President, Chief Technology Officer of the
Company since July 1994. From June 1987 to July 1994, Mr. Hluchyj was Director,
Networking Research for Motorola, Inc.
Mr. Hasselbeck has been Vice President, Worldwide Sales of the Company
since November 1996. From July 1992 to November 1996, Mr. Hasselbeck was Vice
President, International Sales of Boston Technology, Inc. From January 1991 to
June 1992, Mr. Hasselbeck was Vice President, Eastern Region of ITEC
Communications.
Mr. Shaw has been Vice President, Business Development and Planning of the
Company since April 1996. From June 1991 to June 1996 Mr. Shaw was Director of
Marketing for the Company.
Mr. Swee has been Vice President, Engineering since May 1997. From November
1995 to April 1997, Mr. Swee was Vice President, Engineering and Platform
Systems for TyLink/Sync Research, Inc., a data communications company. From 1994
to 1995, Mr. Swee was Vice President, Engineering/Network Products Division for
UB Networks, Inc., an ATM and network switch manufacturer. From 1989 to 1994,
Mr. Swee was Vice President, Systems and Networking, for Kendell Square Research
Corporation, a computer manufacturer.
Executive officers serve at the discretion of the Board of Directors. There
are no family relationships among any of the Company's directors or executive
officers.
EXECUTIVE COMPENSATION
Summary Compensation. The following table sets forth certain information
concerning the compensation for each of the last three fiscal years of the
persons who served as the Company's Chief Executive Officer during fiscal year
1997, the Company's four other most highly compensated executive officers who
were serving as executive officers at the end of fiscal year ended March 31,
1997 and two former executive officers who would have been one of the Company's
four most highly compensated executive officers during the fiscal year ended
March 31, 1997, but for the fact that they were not serving as executive
officers of the Company at the end of fiscal 1997 (collectively, the "Named
Executive Officers"):
6
<PAGE> 9
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL -----------
COMPENSATION SECURITIES ALL
------------------- UNDERLYING OTHER
NAME AND FISCAL SALARY BONUS OPTIONS COMPENSATION
PRINCIPAL POSITION YEAR ($) ($)(1) (SHARES) ($)(2)
- --------------------------------- -------- ------- ------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Robert A. Degan(3)............... 1997 54,661 -- 127,500 571
Chief Executive Officer, 1996 -- -- 2,500 --
President and Director 1995 -- -- 875 --
Barry R. Gorsun(4)............... 1997 229,383 -- -- 3,096
Chairman 1996 237,000 -- -- 3,249
1995 216,737 90,000 50,000 2,221
Thomas A. St. Germain............ 1997 154,126 -- -- 4,237
Senior Vice President 1996 136,500 -- 5,000 3,976
and Chief Financial 1995 132,308 45,500 10,000 1,617
Officer
Kendrick A. Estey(5)............. 1997 151,501 -- 33,500 23,004
Senior Vice 1996 121,000 -- 12,500 1,458
President, Customer 1995 35,311 11,500 10,000 569
Satisfaction and Operations
Michael G. Hluchyj(6)............ 1997 149,606 -- 17,500 3,953
Vice President, 1996 145,000 -- 7,500 2,761
Chief Technology Officer 1995 101,859 36,750 20,000 1,218
John H. Shaw(7).................. 1997 116,502 -- 16,750 2,746
Vice President 1996 -- -- 1,000 --
1995 -- -- 2,000 --
Edward C. Callahan, Jr.(8)....... 1997 195,732 -- -- 12,630
President, Chief 1996 169,615 42,000 110,000 20,850
Operating Officer 1995 -- -- -- --
and Director
Theresa Pratt Wang(9)............ 1997 149,999 -- 17,500 3,044
Vice President 1996 118,269 -- 37,500 2,256
</TABLE>
- ---------------
(1) The amounts shown in the "Bonus" column represent bonuses earned during the
period shown. Bonuses are paid in the fiscal year after the fiscal year in
which they are earned.
(2) Unless otherwise indicated, the amounts shown in the "All Other
Compensation" column represent amounts paid by the Company into the
Company's 401(k) Plan, and Company-related transportation expenses, paid on
behalf of each of the Named Executive Officers.
(3) Mr. Degan was appointed in January 1997 as President and Chief Executive
Officer of the Company. Mr. Degan has also been a director of the Company
since 1984.
(4) Mr. Gorsun relinquished his title as Chief Executive Officer of the Company
upon the appointment of Mr. Degan as President and Chief Executive Officer.
(5) The amount shown in the "All Other Compensation" column for fiscal year 1997
includes $20,411 in reimbursement for relocation expenses.
(6) The amount shown in the "All Other Compensation" column for fiscal year 1997
includes $857 in reimbursement for expenses related to the filing of a
patent on the Company's behalf.
7
<PAGE> 10
(7) Mr. Shaw was promoted to Vice President in April 1996.
(8) Mr. Callahan joined the Company in May 1995 and resigned in November 1996.
"Annual Compensation" amount includes $52,213 in severance compensation. The
amounts shown in the "All Other Compensation" column for fiscal years 1996
and 1997 include $19,731 and $10,519, respectively, of reimbursements for
relocation expenses.
(9) Ms. Pratt Wang joined the Company in May 1995 and resigned in March 1997.
Option Grants. The following table sets forth certain information
concerning option grants during the fiscal year ended March 31, 1997 to the
Named Executive Officers and the number and value of the unexercised options
held by such persons on March 31, 1997.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
------------------------------------------------------------- POTENTIAL
PERCENT OF REALIZABLE VALUE
NUMBER OF TOTAL AT ASSUMED ANNUAL
SECURITIES OPTIONS RATES OF STOCK
UNDERLYING GRANTED TO PRICE APPRECIATION
OPTIONS EMPLOYEES IN EXERCISE MARKET FOR OPTION TERM (1)
GRANTED PRICE PRICE PRICE EXPIRATION -----------------------
NAME (#) FISCAL YEAR ($/SH) ($/SH) DATE 0%($) 5%($) ($)10%
- ------------------------ ---------- ------------- --------- ------- ---------- -------- -------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Robert A. Degan........... 2,500 0.76% $ 13.00 $13.00 7/19/06 -- $ 20,439 $ 51,797
125,000 38.20 8.63 8.63 1/2/07 -- 678,420 1,719,250
Barry R. Gorsun........... -- -- -- -- -- -- -- --
Thomas A. St. Germain..... -- -- -- -- -- -- -- --
Kendrick A. Estey......... 2,500 0.76 13.68 13.68 4/1/11 -- 21,508 54,506
31,000 9.47 13.00 13.00 7/19/06 -- 253,445 642,278
Michael G. Hluchyj........ 17,500 5.35 13.00 13.00 7/19/06 -- 143,074 362,576
John H. Shaw.............. 2,500 0.76 13.68 13.68 4/1/11 -- 21,508 54,506
4,250 1.30 13.00 13.00 7/19/06 -- 34,746 88,054
10,000 3.56 13.00 13.00 7/19/06 -- 81,756 207,187
Theresa Pratt Wang........ 7,500 2.29 13.00 13.00 7/19/06 -- 61,317 155,390
7,500 2.29 13.00 13.00 7/19/06 -- 61,317 155,390
2,500 0.76 11.00 11.00 10/15/06 -- 17,295 43,828
Edward C. Callahan, Jr. .. -- -- -- -- -- -- -- --
</TABLE>
- ---------------
(1) Amounts represent hypothetical gains that could be achieved for the
respective options if exercised at the end of the option term. These gains
are based on assumed rates of stock appreciation of 5% and 10% compounded
annually from the date the respective options were granted to their
expiration date. This table does not take into account any appreciation or
depreciation in the price of the Common Stock to date. Actual gain, if any,
on stock option exercises will depend on future performance of the Common
Stock and the date on which the options are exercised.
8
<PAGE> 11
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES VALUE OF
UNDERLYING UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS AT OPTIONS AT
SHARES FISCAL FISCAL
ACQUIRED YEAR-END(#) YEAR-END(4)(1)
ON ---------------- ---------------
EXERCISE VALUE EXERCISABLE/ EXERCISABLE/
NAME (#) REALIZED($) UNEXERCISABLE UNEXERCISABLE
- --------------------------------------- --------- ------------ ---------------- ---------------
<S> <C> <C> <C> <C>
Robert A. Degan........................ 2,800 $ 1,008 5,000/126,400 --/--
Barry R. Gorsun........................ -- -- 146,235/ 20,000 573,039/--
Thomas A. St. Germain.................. -- -- 60,500/ 24,500 153,825/51,275
Kendrick A. Estey...................... -- -- 7,500/ 48,500 --/--
Michael G. Hluchyj..................... -- -- 14,500/ 30,500 --/--
John H. Shaw........................... 7,000 $ 48,570 1,000/ 22,500 --/17,255
Theresa Pratt Wang..................... -- -- 7,500/ 47,500 --/--
Edward C. Callahan, Jr................. -- -- --/-- --/--
</TABLE>
- ---------------
(1) The per share value of unexercised in-the-money options is calculated by
subtracting the per share option exercise price from the last per share sale
price of the Company's Common Stock on the Nasdaq National Market on March
31, 1997.
EMPLOYMENT AGREEMENTS WITH NAMED EXECUTIVE OFFICERS
On November 21, 1996 the Company entered into an Employment Agreement with
Mr. Degan, effective January 2, 1997 (the "Commencement Date") pursuant to which
Mr. Degan was made President and Chief Executive Officer and a director of the
Company. Mr. Degan receives an annual base salary of $225,000 and is eligible
for a $25,000 bonus, payable on or before April 15, 1997. Mr. Degan is also
eligible on an annual basis thereafter to receive a bonus of up to 40% of his
then current base salary based on the achievement of certain objectives, both
personal and corporate. In addition, pursuant to the agreement Mr. Degan was
granted a stock option to purchase 125,000 shares of the Company's Common Stock
at the closing price on the Commencement Date, vesting in three equal
installments on each anniversary of the Commencement Date. Lastly, Mr. Degan is
entitled to severance benefits of continued payment of his salary and insurance
benefits, if terminated without cause, for twenty-four months if terminated
prior to January 2, 1998 and twelve months if terminated without cause after
January 2, 1998. The Company's obligation to pay any such severance payments
would end once Mr. Degan gains full-time employment in an executive position.
In July 1996 Messrs. St. Germain, Hluchyj, Estey and Shaw and Ms. Pratt
Wang (a former Vice President of the Company) entered into employment agreements
with the Company on terms similar to those of Mr. Degan's agreement, except for
lower compensation, varying stock option grants, shorter periods of severance
payments in the case of termination without cause (typically six to twelve
months), no initial bonus, and in the case of Mr. St. Germain, no initial stock
option grant. In addition, unlike Mr. Degan, the other Named Executive Officers
are eligible to receive severance benefits which entail continued payment of
their salary for up to twelve months if terminated within one year after a
change in control of the Company.
During fiscal year 1997 certain Named Executive Officers resigned from
positions at the Company. In January 1997, Mr. Gorsun resigned from the position
of Chief Executive Officer of the Company and retained the title of Chairman of
the Board of Directors. As a result of his resignation and pursuant to an
agreement entered into with the Company on November 16, 1996, Mr. Gorsun is
entitled to receive monthly retirement payments of $15,625.00 for eighteen
months during which time he will serve as a consultant to the Company,
continuation of his life, medical and dental insurance benefits for three years
and accelerated vesting of then
9
<PAGE> 12
outstanding unvested stock options. The Company has also agreed to provide Mr.
Gorsun with short-term interest bearing loans to enable his exercise of certain
stock options.
In March 1997, Ms. Pratt Wang, former Vice President, resigned from the
Company. Pursuant to her employment agreement with the Company, she is entitled
to receive continued payment of her salary for six months ($12,500 per month)
and a grace period of six months in which to pay in full a loan of $26,662.50
from the Company in connection with a prior purchase of Common Stock. In
addition, Ms. Pratt Wang has agreed to be available during this six month
period, at the request of the Company, to perform consulting services, up to a
maximum of two days per week.
In November 1996, Mr. Callahan, former Chief Executive Officer, resigned
from the Company. Pursuant to an employment agreement letter with the Company
dated May 1, 1995, Mr. Callahan is entitled to receive severance compensation of
$195,732 in salary and continued insurance benefits until November 1997.
REPORT OF THE COMPENSATION COMMITTEE
The Compensation Committee of the Board of Directors (the "Committee") is
composed of two non-employee directors. The Committee is responsible for
establishing and administering the policies which govern both annual
compensation and equity incentive compensation.
This report is submitted by the Committee and addresses the Company's
policies for fiscal 1997 as they apply to the Named Executive Officers.
Executive Compensation Philosophy. The Company's executive compensation
program is designed to provide compensation that attracts, motivates and retains
high caliber people to serve the Company's customers and achieve its strategic
objectives. The Company's executive compensation program is comprised of four
elements: (i) base salary; (ii) annual bonus; (iii) long term incentive
compensation in the form of stock options, and (iv) other benefits generally
available to all the Company's employees.
Base Salary and Annual Bonus. Cash compensation levels for the Company's
executive officers are based primarily on the Committee's subjective evaluation
of competitive salary levels of executive officers with similar backgrounds and
experience as the Company's executive officers. Each executive officer's cash
compensation is comprised of base salary and annual cash bonus. In determining
salary adjustments the Committee considers individual performance and
contributions to the Company. Cash bonuses are awarded based on the attainment
of certain corporate and individual objectives in accordance with the Company's
1997 Executive Incentive Bonus Plan. No cash bonuses were awarded to any of the
Named Executive Officers in fiscal 1997. Salary levels and the bonus program are
reviewed by the Committee on an annual basis.
Long Term Incentive Compensation. The Company's long term incentive
compensation program is implemented through the grant of stock options. This
program is intended to both (i) align executive interests with the long-term
interests of stockholders by integrating long-term stock performance into each
executive officer's overall compensation package and (ii) through multi-year
vesting, provide an incentive for the Company's executive officers to remain
with the Company. Generally, stock options are granted at prevailing market
rates and only have value if the Company's stock price increases, thereby
providing an incentive for the Company's executive officers to improve long-term
stock market performance. Generally, stock options vest in five equal annual
installments and executive officers must be employed by the Company at the time
of vesting in order to exercise the options. The Committee determines the number
of shares subject to option grants to executive officers based on individual
accomplishments measured against certain non-budgeted objectives and
contributions to the Company. The Committee also considers the number, value and
vesting schedule of options already held by each executive officer.
10
<PAGE> 13
Benefits. The Company's executive officers are entitled to receive medical
benefits and life insurance benefits and to participate in the Company's 401(k)
Savings Plan on the same basis as other full-time employees of the Company. The
Company's Employee Stock Purchase Plan, which is available to virtually all
employees, including executive officers, allows participants to purchase shares
at a discount of approximately 15% from the fair market value at the beginning
or end of the applicable purchase period.
Summary of Compensation of Chief Executive. The compensation philosophy
applied by the Compensation Committee in establishing the compensation for the
Company's President and Chief Executive Officer is the same as for the other
senior management of the Company -- to provide a competitive compensation
opportunity that rewards performance.
The Company employed two persons as Chief Executive Officer during fiscal
year 1997. Until January 1997 Mr. Gorsun served as Chairman and Chief Executive
Officer of the Company and was paid a salary of $229,383 for fiscal year 1997.
Mr. Gorsun resigned from the position of Chief Executive Officer in January
1997, upon the hiring of Mr. Degan to succeed him. Mr. Degan served in the
positions of President, Chief Executive Officer and a director of the Company
and was paid a salary of $54,661 during fiscal year 1997. Mr. Degan was granted
stock options in fiscal year 1997 for the purchase of 127,500 shares of Common
Stock of the Company.
Compliance with Section 162(m) of the Internal Revenue Code of 1986, as
amended (the "Code"). Section 162(m) of the Code, enacted in 1993, generally
disallows tax deductions to publicly-traded corporations for compensation over
$1,000,000 paid to the corporation's Chief Executive Officer or any of its other
four most highly compensated executive officers. Qualifying performance-based
compensation is not subject to this disallowance if certain requirements are
met. The Company currently intends to structure the compensation arrangements of
its executive officers in a manner that will avoid disallowances under Section
162(m).
Compensation Committee
Edgar L. Brown, Jr., Chairman
William M. Scranton
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The members of the Compensation Committee during fiscal 1997 were Messrs.
Brown, Degan and Scranton, each of whom has received options to purchase Common
Stock under the Company's Director Plan. Mr. Degan resigned from the
Compensation Committee on December 31, 1997 prior to becoming President and
Chief Executive Officer of the Company in January 1997. No executive officer is
a member of the Compensation Committee.
REPORTS UNDER SECTION 16(a) OF THE EXCHANGE ACT
Based solely on its review of copies of reports filed by persons
("Reporting Persons") required to file such reports pursuant to Section 16(a) of
the Exchange Act, the Company believes that all filings required to be made by
Reporting Persons of the Company were timely made in accordance with the
requirements of the Exchange Act, except that Theresa Pratt Wang, a former Vice
President of the Company, filed a Form 4 on March 17, 1997 in connection with
the purchase of the Company's Common Stock which occurred on February 28, 1997,
and Gordon T. Ray, a director of the Company, filed a Form 4 on March 27, 1997
in connection with the purchase of the Company's Common Stock which occurred on
February 7, 1997. In addition, Todd Hasselbeck, a Vice President of the Company,
as of November 1996, filed a Form 3 on December 31, 1996, and a Form 4 on
December 31, 1996 in connection with the purchase of the Company's
11
<PAGE> 14
Common Stock on November 29, 1996. Lastly, John Shaw, a Vice President of the
Company, as of April 1, 1996, filed a Form 3 on August 6, 1996.
STOCK PERFORMANCE GRAPH
The following graph compares the cumulative total stockholder return on the
Common Stock of the Company during the period from September 23, 1993 (the date
on which the Company's Common Stock began trading on the Nasdaq National Market)
to March 31, 1997 with the cumulative total return over the same period of (i)
the Standard & Poor's 500 Stock Index and (ii) a Peer Group Index* selected by
the Company. This comparison assumes the investment of $100 on September 23,
1993 in the Company's Common Stock, the Standard & Poor's 500 Stock Index and
the Peer Group Index and assumes dividends, if any, are reinvested.
[Graph Chart]
* The Peer Group Index reflects stock performance of the following companies:
ADC Telecommunications Corp., DSC Communications Corp., Newbridge Networks
Corporation, Stratacom, Inc. and Tellabs, Inc.
RATIFICATION OF SELECTION OF INDEPENDENT ACCOUNTANTS
The Board of Directors, at the recommendation of the Audit Committee, has
selected the firm of Coopers & Lybrand L.L.P. as the Company's independent
accountants for the current fiscal year. Coopers & Lybrand L.L.P. has served as
the Company's independent accountants since 1978. Although stockholder
ratification of the Board of Directors' selection of Coopers & Lybrand L.L.P. is
not required by law, the Board of Directors believes that it is advisable to
give stockholders the opportunity to ratify this selection. If this proposal is
not approved at the Annual Meeting, the Board of Directors will reconsider its
selection of Coopers & Lybrand L.L.P.
Representatives of Coopers & Lybrand L.L.P. are expected to be present at
the Annual Meeting. They will have the opportunity to make a statement if they
desire to do so and will also be available to respond to appropriate questions
from stockholders.
12
<PAGE> 15
OTHER MATTERS
Management does not know of any other matters which may come before the
Annual Meeting. However, if any other matters are properly presented to the
Annual Meeting, it is the intention of the persons named in the accompanying
proxy to vote, or otherwise act, in accordance with their judgment on such
matters.
All costs of solicitation of proxies will be borne by the Company. In
addition to solicitations by mail, the Company's directors, officers and regular
employees, without additional remuneration, may solicit proxies by telephone,
telegraph and personal interviews, and the Company reserves the right to retain
outside agencies for the purpose of soliciting proxies. Brokers, custodians and
fiduciaries will be requested to forward proxy soliciting material to the owners
of shares held in their names and the Company will reimburse them for out-
of-pocket expenses incurred on behalf of the Company.
Proposals of stockholders intended to be presented at the 1998 Annual
Meeting of Stockholders must be received by the Company at its principal office
in Manchester, New Hampshire not later than February 15, 1998 for inclusion in
the proxy statement for that meeting.
By Order of the Board of Directors,
PAUL C. SEMPLE
Secretary
June 25, 1997
THE BOARD OF DIRECTORS HOPES THAT STOCKHOLDERS WILL ATTEND THE MEETING.
WHETHER OR NOT STOCKHOLDERS PLAN TO ATTEND, STOCKHOLDERS ARE URGED TO COMPLETE,
DATE, SIGN AND RETURN THE ENCLOSED PROXY IN THE ACCOMPANYING ENVELOPE.
STOCKHOLDERS WHO ATTEND THE MEETING MAY VOTE THEIR SHARES PERSONALLY EVEN THOUGH
THEY HAVE SENT IN THEIR PROXIES.
13
<PAGE> 16
SUMMA FOUR, INC.
ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD JUNE 25, 1997
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS.
The undersigned hereby appoints each of Robert A. Degan and Robert A.
Simeone with full power of substitution, to represent the undersigned at the
Annual Meeting of Stockholders of Summa Four, Inc., to be held on July 25, 1997,
and at any adjournments or postponements thereof, and to vote at such meeting
the shares of Common Stock, the undersigned would be entitled to vote if present
at such meeting, in accordance with the following instructions. If no
instructions are indicated, the shares represented by this proxy will be voted
for each of items 1 and 2 set forth on the reverse side of this card.
The undersigned acknowledges receipt of the Notice of Annual Meeting and
the Proxy Statement together with this proxy.
Please sign exactly as your name(s) appear(s) on your stock certificate. Joint
owners should each sign personally. Trustees and other fiduciaries should
indicate the capacity in which they sign, and where more than one name appears,
a majority must sign. If a corporation, this signature should be that of an
authorized officer who should state his or her title.
HAS YOUR ADDRESS CHANGED? DO YOU HAVE ANY COMMENTS?
<PAGE> 17
[X] PLEASE MARK VOTES AS IN THIS EXAMPLE
(1) Election of Directors
[ ] For
[ ] Withhold
[ ] For all Except
(1) Election of Directors:
EDGAR L. BROWN, JR.
ROBERT A. DEGAN
BARRY R. GORSUN
RUSSELL I. PILLAR
GORDON T. RAY
JOHN A. SHANE
INSTRUCTION: To withhold authority for any individual nominee, mark
the "For All Except box and strike a line through the name(s) of the
nominees).
(2) To ratify the selection of Coopers & Lybrand L.L.P. by the Board of
Directors as the Company's independent auditors for the current fiscal
year.
For [ ] Against [ ] Abstain [ ]
(3) To vote upon any other matters that may properly come before the
meeting according to their best judgment and in their discretion.
Mark box at right if an address change or comment has been noted on
the reverse side of this card. [ ]
Please be sure to sign and date this Proxy. Date:
------------------
- ----------------------------------- -----------------------------------
Stockholder sign here Co-owner sign here
DETACH CARD DETACH CARD
-2-
<PAGE> 18
SUMMA FOUR, INC.
Dear Stockholder,
Please take note of the information enclosed with this Proxy Ballot.
Your vote counts, and you are strongly encouraged to exercise your rights to
vote your shares.
Please mark the boxes on this proxy card to indicate how your shares will be
voted. Then sign the card, detach it and return your proxy vote in the enclosed
postage paid envelope.
Your vote must be received prior to the Annual Meeting of Stockholders to be
held July 25, 1997.
Thank you in advance for your prompt consideration of these matters.
Sincerely,
Summa Four, Inc.
-3-
