<PAGE> 1
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------------------------
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended JUNE 30, 1998
-------------------------
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _________________________
Commission File Number 0-22210
---------------------------------
SUMMA FOUR, INC.
(Exact name of registrant as specified in its charter)
Delaware 02-0329497
(State of Incorporation) (IRS Employer Identification Number)
25 Sundial Avenue, Manchester, New Hampshire 03103
(Address of registrant's principal executive office)
(603) 625-4050
(Registrant's telephone number)
------------------------------
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 the number of shares outstanding of each of the issuer's classes of
common stock as of the latest practical date.
Common Stock, $.01 par value 6,601,981
Outstanding as of June 30, 1998
================================================================================
<PAGE> 2
SUMMA FOUR, INC.
INDEX TO FORM 10-Q
Page(s)
Part I - Financial Information:
Item 1 - Financial Statements
Condensed Consolidated Balance Sheets as of 1
June 30, 1998 and March 31, 1998
Condensed Consolidated Statements of Income 2
for the three months ended June 30, 1998 and 1997
Condensed Consolidated Statements of Comprehensive 3
Income for the three months ended June 30, 1998 and 1997
Condensed Consolidated Statements of Cash Flows 4
for the three months ended June 30, 1998 and 1997
Notes to Condensed Consolidated Financial Statements 5-7
Item 2 - Management's Discussion and Analysis of
Financial Condition and Results of Operations 8-11
Part II - Other Information:
Item 1 - Legal Proceedings 12
Item 2 - Changes in Securities 12
Item 3 - Defaults Upon Senior Securities 12
Item 4 - Submission of Matters to a Vote of 12
Security Holders
Item 5 - Other Information 12
Item 6 - Exhibits and Reports on Form 8-K 12
Signature(s) 13
Exhibits Index 14
<PAGE> 3
FORM 10-Q
PART I
ITEM 1
PAGE 1
SUMMA FOUR, INC.
Condensed Consolidated Balance Sheets
(In thousands, except share data)
<TABLE>
<CAPTION>
JUNE 30, 1998 MARCH 31, 1998
------------- --------------
(Unaudited)
<S> <C> <C>
ASSETS
- ------
Current assets:
Cash and cash equivalents $ 4,536 $ 2,083
Investments - current 13,480 16,148
Accounts receivable, net 11,178 11,398
Inventories, net 5,569 4,036
Deferred income taxes 2,208 2,208
Prepaid and other current assets 1,678 3,933
-------- --------
Total current assets 38,649 39,806
-------- --------
Investments - non-current 10,253 8,987
Property and equipment, net 7,302 6,842
Deferred income taxes 306 306
Other assets 731 655
-------- --------
Total assets $ 57,241 $ 56,596
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Current liabilities:
Accounts payable $ 3,538 $ 4,103
Accrued payroll and related expenses 1,084 1,217
Other accrued liabilities 3,022 3,393
Deferred revenues 2,884 3,378
-------- --------
Total current liabilities 10,528 12,091
Other long-term liabilities 873 938
Commitments and contingencies (note 5)
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 6,601,981 shares at June 30, 1998 and
6,601,697 at March 31, 1998 66 66
Additional paid-in capital 44,058 44,285
Retained earnings 12,707 10,423
Cumulative translation adjustment (68) (28)
Unrealized gains (losses) on investments (10) (15)
Treasury stock, at cost, 830,556 shares at June 30, 1998 and
835,290 shares at March 31, 1998 (10,913) (11,164)
-------- --------
Total stockholders' equity 45,840 43,567
-------- --------
Total liabilities and stockholders equity $ 57,241 $ 56,596
======== ========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
<PAGE> 4
FORM 10-Q
PART I
ITEM 1
PAGE 2
SUMMA FOUR, INC.
Condensed Consolidated Statements of Income
(Unaudited)
(In thousands, except per share data)
Three Months Ended
JUNE 30,
--------------------------
1998 1997
------- -------
Net revenues $ 9,678 $ 9,276
Cost of revenues 4,446 4,334
------- -------
Gross profit 5,232 4,942
------- -------
Operating expenses:
Selling, general and administrative 3,773 3,504
Research and development 2,750 2,795
------- -------
Total operating expenses 6,523 6,299
------- -------
Operating (loss) income (1,291) (1,357)
Other income:
Interest and other income, net 4,654 525
------- -------
Income (loss) before income taxes 3,363 (832)
Provision for (benefit from) income taxes 1,076 (266)
------- -------
Net income (loss) $ 2,287 $ (566)
======= =======
Net income (loss) per share - basic $ 0.40 $ (0.10)
Weighted average common shares
outstanding - basic 5,771 5,571
Net income (loss) per share - diluted $ 0.39 $ (0.10)
Adjusted weighted average common
shares outstanding - diluted 5,891 5,571
The accompanying notes are an integral part of these condensed consolidated
financial statements
<PAGE> 5
FORM 10-Q
PART I
ITEM 1
PAGE 3
SUMMA FOUR, INC.
Condensed Consolidated Statements of Comprehensive Income
(unaudited)
(In thousands)
Three Months Ended
June 30,
1998 1997
------ -----
Net income $2,287 $(566)
-----
Other comprehensive income net of tax:
Foreign currency translation adjustment (40) -
Unrealized holding gains (losses) on securities
arising during the period 5 (71)
------ -----
Other comprehensive income (35) (71)
------ -----
Comprehensive income $2,252 $(637)
====== =====
The accompanying notes are an integral part of these condensed consolidated
financial statements
<PAGE> 6
FORM 10-Q
PART I
ITEM 1
PAGE 4
SUMMA FOUR, INC.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
(In thousands)
<TABLE>
<CAPTION>
Three Months Ended
JUNE 30,
------------------------
1998 1997
------- -------
<S> <C> <C>
Cash flows from operating activities:
Net (loss) income $ 2,287 $ (566)
------- -------
Adjustments to reconcile net (loss) income to net
cash (used in) provided by operating activities:
Depreciation and amortization 794 629
Provision for doubtful accounts 20 -
Changes in operating assets and liabilities:
Accounts receivable 200 1,092
Inventory (1,533) (1,251)
Prepaid and other current assets 2,255 628
Other assets (75) (61)
Accounts payable (565) (253)
Accrued payroll and related expenses (133) 66
Deferred revenues (550) -
Other accrued expenses and other liabilities (372) (1,384)
------- -------
Total adjustments 41 (534)
------- -------
Net cash provided by (used in) operating activities 2,328 (1,100)
------- -------
Cash flows from investing activities:
Purchases of property and equipment (1,255) (1,074)
Sales (purchases) of investments, net 1,407 (3,074)
------- -------
Net cash provided by (used in) investing activities 152 (4,148)
------- -------
Cash flows from financing activities:
Proceeds from sales of stock under stock option
and purchase plans 24 320
Principle payments under capital lease obligations (8) (7)
------- -------
Net cash provided by financing activities 16 313
------- -------
Effect of exchange rate on cash (43) -
Net increase (decrease) in cash and cash equivalents 2,453 (4,935)
Cash and cash equivalents, beginning of period 2,083 6,169
------- -------
Cash and cash equivalents, end of period $ 4,536 $ 1,234
======= =======
Supplemental disclosure of cash flow information:
Cash paid for interest 2 3
Cash paid for income taxes 60 709
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
<PAGE> 7
FORM 10-Q
PART I
ITEM 1
PAGE 5
SUMMA FOUR, INC.
Notes to Unaudited Condensed Consolidated Financial Statements
June 30, 1998
1. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements
have been prepared in accordance with generally accepted accounting
principles for interim financial information and pursuant to the rules
and regulations of the Securities and Exchange Commission. Accordingly,
they do not include all of the information and footnotes required by
generally accepted accounting principles for complete financial
statements.
In the opinion of management, all adjustments (consisting only of
normal recurring adjustments) considered necessary for a fair
presentation have been included. Operating results for the three month
period ended June 30, 1998 are not necessarily indicative of the
results that may be expected for the year ended March 31, 1999, or any
other future financial period. For further information, refer to the
Company's consolidated financial statements and notes thereto contained
in the Company's Annual Report on Form 10-K for the year ended March
31, 1998 filed with the Securities and Exchange Commission. The
year-end condensed balance sheet data was derived from audited
financial statements, but does not include all disclosures required by
generally accepted accounting principles.
2. INVENTORIES
Inventories, valued at the lower of cost (determined using the
first-in, first-out method) or market were as follows (in thousands):
JUNE 30, 1998 MARCH 31, 1998
------------- --------------
Raw materials $ 1,868 $ 1,898
Work-in-process 2,631 1,309
Finished goods 1,070 829
------- -------
$ 5,569 $ 4,036
======= =======
3. MAJOR CUSTOMER INFORMATION
Historically, a significant portion of the Company's net revenues is
derived from a limited number of customers. Approximately 30% of the
Company's net revenues for the three months ended June 30, 1998 were
from three customers accounting for 12%, 11%, and 7%, respectively, of
net revenues. Approximately 28% of the Company's net revenues for the
three months ended June 30, 1997 were from three customers accounting
for 11%, 10%, and 7%, respectively, of net revenues.
<PAGE> 8
FORM 10-Q
PART I
ITEM 1
PAGE 6
4. RECENT PRONOUNCEMENT
In June 1997, the Financial Accounting Standards Board issued SFAS No.
130, "Reporting Comprehensive Income." This statement requires that
changes in comprehensive income be shown in a financial statement that
is displayed with the same prominence as other financial statements.
The statement will be effective for annual periods beginning after
December 15, 1997. Reclassification for earlier periods is required for
comparative purposes. The Company has adopted SFAS No. 130 in its first
(current) quarter for fiscal 1999.
In June 1997, the Financial Accounting Standards Board issued SFAS No.
131, "Disclosures about Segments of an Enterprise and Related
Information." This statement supersedes SFAS No. 14, "Financial
Reporting for Segments of a Business Enterprise." This statement
includes requirements to report selected segment information quarterly
and entity-wide disclosures about products and services, major
customers, and the material countries in which the entity holds assets
and reports revenues. The statement will be effective for annual
periods beginning after December 15, 1997 and the Company will adopt
its provisions in fiscal 1999. Reclassifications for earlier periods is
required, unless impracticable, for comparative purposes. The Company
is currently evaluating the impact SFAS No. 131 will have on its
financial statements; however, because SFAS No. 131 only requires
additional disclosure, the Company does not expect a material impact on
its financial position or results of operations.
In October 1997, the American Institute of Certified Public Accountants
("AICPA") issued the statement of position ("SOP") 97-2 "Software
Revenue Recognition," which will supersede SOP 91-1. SOP 97-2 has not
changed the basic rules of revenue recognition but does provide more
guidance, particularly with respect to multiple deliverables and "when
and if available" products. SOP 97-2 is effective for transactions
entered into for annual periods beginning after December 15, 1997. The
effect from adopting SOP 97-2 is immaterial.
5. CONTINGENCIES
On May 22, 1998, Excel Switching Corporation ("Excel") filed suit in
U.S. District Court for the District of Massachusetts alleging that
certain unspecified telecommunications products of the Company have
infringed U.S. Patent Nos. 5,546,453, 5,426,694, and 5,349,579
allegedly owned by Excel. The Company has answered Excel's complaint,
alleging that the Company has not infringed the Excel patents, and that
those patents are invalid. The Company has also asserted appropriate
counterclaims and intends to vigorously defend the litigation. The
litigation is, however, in its early stages and its outcome is,
therefore, uncertain at this time.
<PAGE> 9
FORM 10-Q
PART I
ITEM 1
PAGE 7
6. EARNINGS PER SHARE
Basic earnings per share excludes the dilutive effect of common
equivalent securities and is computed by dividing income available to
common shareholders by the weighted average number of common shares
outstanding for the period. Diluted earnings per share reflects the
potential dilution that could occur if stock options were exercised
that resulted in the issuance of common stock that then shared in the
earnings of the entity. In accordance with SFAS No. 128, the Company
has restated all prior period earnings per share data presented. A
reconciliation between basic earnings per share and diluted earnings
per share is as follows (in thousands except per share data):
June 30,
1998 1997
------ ------
Basic
Weighted average common shares outstanding 5,771 5,571
====== ------
Net income (loss) $2,287 $ (566)
Per share amount $ 0.40 $(0.10)
====== ======
Diluted
Weighted average common shares outstanding 5,771 5,571
Net effect of dilutive stock options -
based on the treasury stock method 120 0
------ ------
Total 5,891 5,571
====== ======
Net income (loss) $2,287 $ (566)
Per share amount $ 0.39 $(0.10)
====== ======
7. SUBSEQUENT EVENTS
On July 27, 1998 the Company entered into a definitive agreement with
Cisco Systems, Inc. ("Cisco") pursuant to which Cisco would acquire the
Company. Under the terms of the agreement, which has been approved by
the board of directors of each company, between 0.161 and 0.197 shares
of Cisco common stock would be exchanged for each outstanding share of
common stock of the Company. The completion of the transaction is
subject to approval by the Company's stockholders and various other
conditions, including approval under the Hart-Scott-Rodino Antitrust
Improvements Act.
<PAGE> 10
FORM 10-Q
PART I
ITEM 2
PAGE 8
SUMMA FOUR, INC.
Management's Discussion and Analysis of
Financial Condition and Results of Operations
June 30, 1998
The statements contained in this Quarterly Report on Form 10-Q which 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. Without limiting the foregoing,
the words "believes," "anticipates," "plans," "expects," and similar expressions
are intended to identify forward-looking statements. 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 there are a number
of important factors that could cause the Company's actual results to differ
materially from those indicated in any such forward-looking statements. These
factors include, without limitation, those set forth under the caption below
"Factors That May Affect Future Operating Results".
RESULTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 1998 COMPARED WITH THREE MONTHS ENDED JUNE 30, 1997
Net revenues increased by $0.4 million (4%) to $9.7 million for the three months
ended June 30, 1998 compared to $9.3 million, for the three months ended June
30, 1997. Shipments to the Company's application developers and reseller
customers represented approximately 58% of revenues for the three months ended
June 30, 1998 compared to 65% for the three months ended June 30, 1997.
Shipments to international customers represented approximately 47% of total
revenues for the quarter ended June 30, 1998 versus 53% for the same quarter in
1997. Shipments to Asian markets were below plan, primarily the result of weak
economic conditions throughout that region.
Gross profit increased by $0.3 million (6%) to $5.2 million for the three months
ended June 30, 1998 compared to $4.9 million for the three months ended June 30,
1997. Gross margin increased to 54% in the three months ended June 30, 1998 from
53% in the three months ended June 30, 1997. The increase in gross margin, when
compared to the same quarter in the previous fiscal year, was primarily
attributable to a shift in sales mix toward the newly introduced VCO-4K switch
which contains higher margin components. The Company does not believe that 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,
continuing introduction of new product(s) and discounts granted to high volume
purchasers.
Selling, general and administrative expenses increased by $0.3 million (9%) to
$3.8 million, or 39% of net revenues, for the three months ended June 30, 1998
compared with $3.5 million, or 38% of net revenues, for the three months ended
June 30, 1997. The increase in expenses was primarily due to an increased level
of sales personnel in the period ended June 30, 1998 compared to June 30, 1997.
Research and development expenses were $2.8 million or 28% of net revenues for
the three months ended June 30, 1998 compared to $2.8 million or 30% of net
revenues for the three months ended June 30, 1997. The Company believes that its
current spending level on research and development is required to advance its
position as a core network supplier for telecommunications service providers.
Included are costs attributable to research and development directed to the new
Sigma line of standards based programmable switches.
<PAGE> 11
FORM 10-Q
PART I
ITEM 2
PAGE 9
Operating income increased by $0.1 million to a loss of $1.3 million for the
three months ended June 30, 1998 compared to a loss of $1.4 million for the
three months ended June 30, 1997. The current quarter loss was primarily due to
revenue shortfall related to reduced sales levels within the Asian markets,
primarily the result of weak economic conditions throughout that region.
Interest and other income increased by $4.2 million to $4.7 million for the
three months ended June 30, 1998 compared to $0.5 million for the three months
ended June 30, 1997. The increase is primarily due to the receipt of $4.4
million (net) from the settlement of litigation.
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 1998, the Company had $28.3 million in cash, cash equivalents and
investments. At March 31, 1998, the Company had $27.2 million in cash, cash
equivalents and investments. This increase is primarily due to the receipt of
funds in connection with the settlement of a lawsuit. At June 30, 1998, the
ratio of current assets to current liabilities was 3.7:1 compared to 3.3:1 at
March 31, 1998. Purchase commitments to suppliers of the Company's products were
approximately $5.9 million and $8.2 million at June 30, 1998 and March 31, 1998,
respectively.
Inventory increased by $1.6 million (40%) to $5.6 million at June 30, 1998 from
$4.0 million at March 31, 1998. The increase primarily resulted from lower than
anticipated product shipments, particularly to the Asian market where weakened
economic conditions prevail.
Other current assets decreased to $1.7 million at June 30, 1998 from $3.9
million at March 31, 1998. The decrease resulted primarily from the reduction of
prepaid items which have now been incurred as expense.
The Company maintains an unsecured bank line of credit in the amount of $6.0
million. At June 30, 1998, no borrowings were outstanding under this line.
Unless renewed, the line expires in September 1998. This line bears interest at
the bank's prime interest rate per annum (8.5% at June 30, 1998). The Company
believes that cash generated from operations and the total of its cash and
current investments, together with existing sources of debt financing, will be
sufficient to meet its anticipated cash requirements for working capital and
capital expenditures for at least the next twelve months.
On December 16, 1996, the Company's Board of Directors authorized the repurchase
of up to 500,000 shares of common stock as an extension of the Company's
repurchase program. As of June 30, 1998, the Company had repurchased a
cumulative total of 405,065 shares related to this extension at an average cost
of $10.16 per share and had reissued 45,475 shares at an average price of $7.37
related to purchases under its Employee Stock Purchase Plan. The repurchases
were funded through the Company's cash and investments. The Company has no
immediate plans to continue to repurchase shares but may elect to repurchase
additional shares of its common stock, at some future point, depending on stock
market conditions, price per share and other factors.
The Company does not consider the impact of inflation on its business activities
to have been significant to date.
<PAGE> 12
FORM 10-Q
PART I
ITEM 2
PAGE 10
FACTORS THAT MAY AFFECT FUTURE OPERATING RESULTS
A number of uncertainties exist that could affect the Company's future operating
results, including without limitation, the following:
- On July 27, 1998, the Company entered into a definitive agreement
with Cisco Systems, Inc. (the "Merger Agreement") pursuant to
which the Company's stockholders would be issued between 0.161 and
0.197 shares of Cisco common stock for each share of the Company's
common stock held by them and the Company would be merged with a
wholly owned subsidiary of Cisco (the "Merger") and would thereby
become a wholly owned subsidiary of Cisco. The consummation of the
Merger is subject to certain conditions and approvals, including
approval by the Company's stockholders and approval under the
Hart-Scott-Rodino Antitrust Improvements Act. Certain business
relationships of the Company, including employee, customer and
supplier relations, could be influenced by the prospect of the
Merger. There can be no assurance that such relationships will not
be adversely affected in contemplation of the Merger. In addition,
matters in connection with the Merger will require dedication of
management resources, which may temporarily distract attention
from the day-to-day business of the Company. As a result of the
foregoing, and in the event that the Merger is not consummated,
the Company's results of operations could be materially and
adversely affected.
- The Company has entered into a strategic license agreement with
Dialogic, Inc. The Company has also formed Summation, LLC, a
jointly owned entity whose principals are the Company which holds
a majority interest, and Junction, Inc., a California based
development company. Under the terms of the Merger Agreement, and
subject to the consummation of the merger, the Company has entered
into an agreement with Junction, Inc. to purchase its interest in
Summation, LLC upon the closing of the merger. The Company
anticipates that these relationships will result in the
development of a new line of standards based programmable switches
(Sigma) targeted for late fiscal 1999. The Company further
anticipates that the expenses associated with these developmental
activities will be funded from operations. There can be no
assurance that these or other similar relationships will result in
the development of salable product(s) which will be beneficial to
the future of the Company or that products produced by these or
other similar relationships 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
subassemblies used in the Company's products are no longer being
manufactured. 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 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.
<PAGE> 13
FORM 10-Q
PART I
ITEM 2
PAGE 11
- 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, product mix, changing market conditions and increasing
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 operations 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,
including the cost of defending against such claims (see item 1,
Legal Proceedings). 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 indictor of future performance.
<PAGE> 14
FORM 10-Q
PART II
ITEM 1-6
PAGE 12
SUMMA FOUR, INC.
Part II - Other Information
June 30, 1998
ITEM 1 - LEGAL PROCEEDINGS
On May 22, 1998, Excel Switching Corporation ("Excel") filed suit in
U.S. District Court for the District of Massachusetts alleging that
certain unspecified telecommunications products of the Company have
infringed U.S. Patent Nos. 5,546,453, 5,426,694, and 5,349,579
allegedly owned by Excel. The Company has answered Excel's complaint,
alleging that the Company has not infringed the Excel patents, and that
those patents are invalid. The Company has also asserted appropriate
counterclaims and intends to vigorously defend the litigation. The
litigation is, however, in its early stages and its outcome is,
therefore, uncertain at this time.
ITEM 2 - CHANGES IN SECURITIES
Not applicable.
ITEM 3 - DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
ITEM 5 - OTHER INFORMATION
Not applicable.
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
a. EXHIBITS
The exhibits listed in the Exhibit Index are part of or included in
this report.
b. REPORTS ON FORM 8-K
A current report on Form 8-K was filed with the Securities and Exchange
Commission on June 2, 1998 whereby the Company reported in Item 5 of
such report that it had settled certain litigation.
<PAGE> 15
FORM 10-Q
PART II
PAGE 13
SIGNATURES
Pursuant to the requirements 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.
Summa Four, Inc.
Date: August 14, 1998 /s/ Robert A. Degan
-------------------------------------
Robert A. Degan
President and Chief Executive Officer
Date: August 14, 1998 /s/ Jeffrey A. Weber
-------------------------------------
Jeffrey A. Weber
Vice President Finance and
Chief Financial Officer
<PAGE> 16
FORM 10-Q
PART II
PAGE 14
Exhibit Index
Exhibit No. Description
- ------------- -----------
10.1 Amendment dated June 3, 1998 to lease agreement dated
July 18, 1990 with Northern Manchester trust.
10.2 Operating Agreement dated April 3, 1998, by and
between the Registrant and Junction, Inc.
27. Financial Data Schedule
<PAGE> 1
Exhibit 10.1
LEASE AMENDMENT
HAVERFORD-HATHAWAY, L.L.C., c/o SMC Management Corp., One Sundial Avenue,
Suite 505, 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 23, 1995 (the "August 23, 1995 Amendment");
WHEREAS, the August 23, 1995 Amendment extended the term of the Lease until
August 31, 1998;
WHEREAS, the Lessee presently leases a total of 70,554 rentable square feet
(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. The term of the Lease shall be until August 31, 2003.
3. The lease rate for the entire 70,554 RSF shall be as follows:
Period Base Rent Annual Rate Monthly Rate
- ------ --------- ----------- ------------
9/1/98 - 3/31/99 $5.00 NNN $352,770.00 $29,397.50
4/1/99 - 8/31/99 $5.25 NNN $370,408.50 $30,867.37
9/1/99 - 8/31/00 $5.50 NNN $388,047.00 $32,337.25
9/1/00 - 8/31/01 $5.75 NNN $405,685.50 $33,807.12
9/1/01 - 8/31/02 $6.00 NNN $423,324.00 $35,277.00
9/1/02 - 8/31/03 $6.25 NNN $440,962.50 $36,746.87
4. Lessee shall be responsible for its full proportionate share of
operating expenses (estimated at $2.75 RSF for 1998) and real estate taxes
(estimated at $.70 RSF for 1998) which shall be in addition to the base rent.
5. Lessee shall be responsible for payment of its separately metered
electric and gas utilities.
6. Lessee shall have the option of terminating the Lease on February 28,
2002 ("Early Termination") by providing to Lessor written notice of its intent
to terminate the Lease. The written notice shall be given to Lessor not sooner
than May 1, 2001, but not
<PAGE> 2
later than May 31,2001. Failure to provide said notice at the time set forth
herein shall void Lessee's right to Early Termination and the term of the Lease
shall be unchanged (i.e. until 8/31/2003).
7. Lessor, at its expense, shall undertake the following improvements in a
manner and at times which will not unreasonably interfere with Lessee's business
operation:
* Replacement of carpeting in the 5th floor executive area at a
cost of up to $7,000.00.
* Installation of adequate space heater in shipping/loading area at
a cost of up to $3,000.00.
* Provide same level access to bathroom for employees in
shipping/loading area at a cost not to exceed $3,000.00.
* Lessor will make its best effort to correct water leakage problem
around windows, particularly those on the 5th floor.
8. Lessor's agent shall pay a total of $16,000.00 to Lessee's real estate
consulting team (consisting of the Norwood Group, Corporate Facilities Group,
Facility Planning and Management).
9. All other terms and conditions of the Lease and Amendments not modified
herein shall remain in full force and effect.
LESSOR:
HAVERFORD - HATHAWAY, L.L.C.
SMC MANAGEMENT CORP., AGENT
/s/ Martha S. illegible /s/ Pamela J. Halvorsen
- ------------------------- ----------------------------
Witness By: Pamela J. Halvorsen
Its: Vice President
Duly Authorized
LESSEE:
SUMMA FOUR, INC.
/s/ illegible /s/ Jeffrey A. Weber
- ------------------------- ----------------------------
Witness By: Jeffrey A. Weber
Its: VP Finance and CFO
Duly Authorized
<PAGE> 1
OPERATING AGREEMENT OF
SUMMATION LLC
THIS OPERATING AGREEMENT of SUMMATION LLC (the "LLC"), dated as of
April 3 , 1998 is between Summa Four, Inc., a Delaware corporation ("Summa
Four") and Junction, Inc., a Delaware corporation ("Junction"). Each of such
persons is sometimes hereinafter referred to individually as a "Member" or an
"Initial Member," and such persons are sometimes hereinafter referred to
collectively as the "Members" or the "Initial Members";
WHEREAS, the Members have agreed to form a joint development entity for
the purpose of developing a programmable switching platform for use in the
telecommunications industry, as more fully described on Schedule A attached
hereto (the "Product");
WHEREAS, the Initial Members intend to form a limited liability company
pursuant to the Delaware Limited Liability Company Act (the "Act");
WHEREAS, as soon as practicable after the date hereof, the Initial
Members shall cause to be filed in the Office of the Secretary of State of the
State of Delaware a Certificate of Organization for the LLC (the "Certificate");
and
WHEREAS, the Members desire to enter into this Agreement to set forth
the agreements among the Members with respect to the LLC, all as more fully set
forth herein.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, and in consideration of the
agreements hereinafter set forth, the Initial Members hereby agree as follows:
ARTICLE I
GENERAL PROVISIONS
1.01 Formation of Limited Liability Company; Foreign Qualification. The
Members hereby agree to form the LLC as a limited liability company under the
Act. The term of the LLC shall commence upon the filing of the Certificate in
the Office of the Secretary of State of the State of Delaware (the "Filing
Date").
The Members shall promptly cause the Certificate to be filed. Prior to
the LLC's conducting business in any jurisdiction other than the State of
Delaware, the LLC shall comply, to the extent procedures are available, with all
requirements necessary to qualify the LLC as a foreign limited liability company
in each such jurisdiction where foreign qualification is either necessary or
appropriate. Each Member shall execute, acknowledge, swear to and deliver all
certificates and other instruments conforming to this Agreement that are
necessary or appropriate to qualify, or, as appropriate, to continue or
terminate such qualification of, the LLC as a foreign limited liability company
in all such jurisdictions in which the LLC may conduct business.
<PAGE> 2
1.02 Name of the LLC. The name of the LLC shall be Summation LLC.
1.03 Business of the LLC; Ancillary Agreements. The business of the LLC
is to develop and test the Product and thereafter to perform (or subcontract
Junction or another entity to perform) maintenance and further development
functions with respect to the Product. The LLC may engage in any activities
determined by the Members to be directly or indirectly related or incidental to
the above business, including, but not necessarily limited to the development of
one or more fully operational Product prototypes. In furtherance of, and without
limiting the foregoing, the LLC shall (i) enter into an agreement with Summa
Four in the form attached hereto as Exhibit I (the "LLC Development Agreement")
pursuant to which, (A) the LLC shall arrange for the development and testing of
the Product in accordance with the terms, conditions and milestones describe in
the LLC Development Agreement and (B) Summa Four shall: (x) make cash payments,
as described in the LLC Development Agreement, to the LLC for the purpose of
funding the development and testing of the Product, and (y) license to the LLC
any Licensed Summa Four Technology (as defined therein) necessary for the
development of the Product; (ii) enter into a subcontract agreement with
Junction, in the form attached hereto as Exhibit II (the "Junction Subcontract")
pursuant to which Junction will develop certain elements of the Product in
accordance with the terms, conditions and milestones describe therein; and (iii)
grant to Summa Four until March 31, 2003, a paid-up, royalty-free, exclusive,
worldwide license for use of the Product in the form attached hereto as Exhibit
III (the "Summa License"). The LLC Development Agreement, Summa License and
Junction Subcontract are hereinafter collectively referred to as the "Ancillary
Agreements."
1.04 Place of Business of the LLC; Resident Agent. The registered
office of the LLC at which the LLC will maintain its records in accordance with
the Act, is c/o The Corporation Trust Co., Corporation Trust Center, 1209 Orange
Street, Wilmington, Delaware 19801. The LLC's resident agent for service of
process in the State of Delaware shall be The Corporation Trust Co., Corporation
Trust Center, 1209 Orange Street, Wilmington, Delaware 19801.
1.05 Duration of the LLC. The term of the LLC shall commence upon the
filing of the Certificate, and the LLC shall have perpetual existence, unless
earlier terminated in accordance with Article VII hereof.
1.06 Members' Names and Addresses. The name and business address of
each Member are set forth on Schedule B attached hereto. Additional Members may
be admitted in accordance with the procedures specified in Article VI.
1.07 No Partnership. The LLC is not intended to be a general
partnership, limited partnership or joint venture, and no Member shall be
considered to be a partner or joint venturer of any other Member, for any
purposes other than foreign and domestic federal, state, provincial and local
income tax purposes, and this Agreement shall not be construed to suggest
otherwise.
-2-
<PAGE> 3
1.08 Title to LLC Property. All property owned by the LLC, whether real
or personal, tangible or intangible, shall be deemed to be owned by the LLC as
an entity, and no Member, individually, shall have any ownership of such
property. The LLC may hold any of its assets in its own name or in the name of
its nominee, which nominee may be one or more trusts. Any property held by a
nominee trust for the benefit of the LLC shall, for purposes of this Agreement,
be treated as if such property were directly owned by the LLC.
1.09 Nature of Member's Interest. The interests of all of the Members
in the LLC are personal property and shall not, under any circumstances, be
considered real property.
1.10 Investment Representations. Each Member, by execution of this
Agreement or an amendment hereto reflecting such Member's admission to the LLC,
hereby represents and warrants to the LLC that:
(a) It is acquiring an interest in the LLC for its own account for
investment only, and not with a view to, or for sale in connection with, any
distribution thereof in violation of the Securities Act of 1933, as amended (the
"Securities Act"), or any rule or regulation thereunder.
(b) It understands that (i) the interest in the LLC it is
acquiring has not been registered under the Securities Act or applicable state
securities laws and cannot be resold unless subsequently registered under the
Securities Act and such laws or unless an exemption from such registration is
available, (ii) such registration under the Securities Act and such laws is
unlikely at any time in the future and neither the LLC nor the Members are
obligated to file a registration statement under the Securities Act or such
laws, and (iii) the assignment, sale, transfer, exchange, or other disposition
of the interests in the LLC is restricted in accordance with the terms of this
Agreement.
(c) It has had such opportunity as it has deemed adequate to ask
questions of and receive answers from representatives of the LLC concerning the
LLC, and to obtain from representatives of the LLC such information which the
LLC possesses or can acquire without unreasonable effort or expense, as is
necessary to evaluate the merits and risks of an investment in the LLC.
(d) It has, either alone or with its professional advisers,
sufficient experience in business, financial and investment matters to be able
to evaluate the merits and risks involved in investing in the LLC and to make an
informed investment decision with respect to such investment.
(e) It can afford a complete loss of the value of its investment
in the LLC and is able to bear the economic risk of holding such investment for
an indefinite period.
(f) (i) It is duly organized, validly existing and in good
standing under the laws of its jurisdiction of organization, (ii) it has full
organizational power to execute and
-3-
<PAGE> 4
deliver this Agreement and to perform its obligations hereunder, (iii) its
execution, delivery and performance of this Agreement has been authorized by all
requisite action on behalf of the entity, and (iv) it has duly executed and
delivered this Agreement.
ARTICLE II
CAPITAL CONTRIBUTIONS, PROFITS AND LOSSES
2.01 Capital Accounts. For each Member (and each permitted assignee),
the LLC shall establish and maintain a separate Capital Account.
2.02 Capital Contributions. The value of each Member's capital
contribution to the LLC is the amount set forth opposite its name on Schedule B
attached hereto.
2.03 Contributions by Summa Four. Summa Four has caused or will cause
to be contributed to the LLC a license to use certain technology pursuant to a
license agreement set forth on Schedule C-1 hereto and shall provide funding and
certain other property to be used for the development of the Product pursuant to
the LLC Development Agreement.
2.04 Contributions by Junction. Junction has caused to be contributed
to the LLC all of its rights, titles and interests in the Product pursuant to an
assignment agreement set forth on Schedule C-2 hereto and all of its rights,
titles and interests in the work to be produced pursuant to a Junction
Subcontract.
2.05 Additional Capital Contributions. No Member shall be obligated or
permitted to contribute any additional capital to the LLC except as provided
under Section 2.03. No interest shall accrue on any contributions to the capital
of the LLC, and no Member shall have the right to withdraw or to be repaid any
capital contributed by it or to receive any other payment in respect of its
interest in the LLC, including without limitation as a result of the withdrawal
or resignation of such Member from the LLC, except as specifically provided in
this Agreement.
2.06 Definitions. For purposes of this Agreement, the following terms
shall have the meanings ascribed to them in this Section 2.06:
(a) "Capital Account" means a separate account maintained for each
Member and adjusted in accordance with Regulations under Section 704 of the
Code. To the extent consistent with such Regulations, the adjustments to such
accounts shall include the following: there shall be credited to each Member's
Capital Account the amount of any cash or the net fair market value of any
property actually contributed by such Member to the capital of the LLC and such
Member's share of the Net Profits of the LLC and of any items in the nature of
income or gain separately allocated to the Members; and there shall be charged
against each Member's Capital Account the amount of any cash and the net fair
market value of any property distributed to such Member and such Member's share
of the Net
-4-
<PAGE> 5
Losses of the LLC and of any items in the nature of losses or deductions
separately allocated to the Members.
(b) "Carrying Value" means, with respect to any asset, the asset's
adjusted basis for federal income tax purposes; provided, however, that (i) upon
a contribution of an asset in-kind, such asset's Carrying Value and (ii) in the
circumstances described in Treasury Regulation Section 1.704-1(b)(2)(iv)(f), the
Carrying Value of all of the Partnership's assets shall be adjusted to their
respective fair market values and shall thereafter be adjusted in accordance
with the provisions of Treasury Regulation Section 1.704-1(b)(2)(iv)(g).
(c) "Code" means the Internal Revenue Code of 1986, as amended.
(d) "LLC Capital" means an amount equal to the sum of all of the
Members' Capital Account balances determined immediately prior to the allocation
to the Members pursuant to Sections 2.07(a)(ii) or 2.07(b)(i) of any Net Profits
or Net Losses, increased by the aggregate amount of Net Profits then to be
allocated to the Members pursuant to Section 2.07(a)(ii) or decreased by the
aggregate amount of Net Losses then to be allocated to the Members pursuant to
Section 2.07(b)(i).
(e) "Excess Negative Balance" for a Member means the excess, if
any, of (i) the negative balance in a Member's Capital Account after reducing
such balance by the net adjustments, allocations and distributions described in
Treasury Regulation Sections 1.704- 1(b)(2)(ii)(d)(4), (5) and (6) which, as of
the end of the LLC's taxable year are reasonably expected to be made to such
Member, over (ii) the amount, if any, which the Member is required to restore to
the LLC upon liquidation of such Member's interest in the LLC (or which is so
treated pursuant to Treasury Regulations Section 1.704-1(b)(2)(ii)(c)).
(f) "Net Profits" and "Net Losses" mean the taxable income or
loss, as the case may be, as determined in accordance with Code Section 703(a)
(for this purpose, all items of income, gain, loss, or deduction required to be
separately stated pursuant to Code Section 703(a)(1) shall be included in
taxable income or loss) computed with the following adjustments:
(i) Items of gain, loss, and deduction shall be computed based upon
the Carrying Values of the LLC's assets (in accordance with Treasury Regulation
Sections 1.704-1(b)(2)(iv)(g) and/or 1.704-3(d)) rather than upon the assets'
adjusted bases for federal income tax purposes;
(ii) Any tax-exempt income received by the LLC shall be included as an
item of gross income;
(iii) The amount of any adjustments to the Carrying Values of any
assets of the LLC pursuant to Code Section 743 shall not be taken into account;
and
-5-
<PAGE> 6
(iv) Any expenditure of the LLC described in Code Section 705(a)(2)(B)
(including any expenditures treated as being described in Section 705(a)(2)(B)
pursuant to Treasury Regulations under Code Section 704(b)) shall be treated as
a deductible expense.
2.07 General Allocations of Net Profits and Net Losses.
(a) Except as provided in Sections 2.08 and 2.09 below (which
shall be applied first), any Net Profits of the LLC shall be allocated as
follows:
(i) First, to any Members having negative Capital Account
balances, in proportion to and to the extent of such negative balances; and
(ii) The balance, if any, to the Members in such proportions and
in such amounts as would result in the Capital Account balance of each Member
equaling, as nearly as possible, such Member's share of the then LLC Capital
determined by calculating the amount the Member would receive if an amount equal
to the LLC Capital were distributed to the Members in accordance with the
provisions of Section 3.02 hereof.
(b) Except as provided in Sections 2.08 and 2.09 below (which
shall be applied first), any Net Losses of the LLC shall be allocated among the
Members as follows:
(i) First, to each Member with a positive Capital Account
balance, in the amount of such positive balance; provided, however, that if the
amount of Net Losses to be allocated is less than the sum of the Capital Account
balances of all Members having positive Capital Account balances, then the Net
Losses shall be allocated to the Members in such proportions and in such amounts
as would result in the Capital Account balance of each Member equaling, as
nearly as possible, such Member's share of the then LLC Capital determined as
set forth in Section 2.07(a)(ii) above; and
(ii) The balance, if any, to the Members in accordance with their
percentage interests as set forth on Schedule B hereto ("Percentage Interests").
2.08 Allocations of Nonrecourse Deductions and Minimum Gain.
Notwithstanding the provisions of Section 2.07 above, if at any time the LLC
incurs any "nonrecourse debt" (i.e. debt that is treated as nonrecourse for
purposes of Treasury Regulation Section 1.1001-2), the following provisions will
apply notwithstanding anything to the contrary expressed elsewhere in this
Agreement:
(i) "Nonrecourse deductions" (as defined in Treasury Regulation
Sections 1.704-2(b) and (c)) other than deductions attributable to "partner
nonrecourse debt" (as defined in Treasury Regulation Section 1.704-2(b)(4))
shall be allocated to the Members in accordance with their respective Percentage
Interests;
-6-
<PAGE> 7
(ii) Nonrecourse deductions attributable to partner nonrecourse debt
shall be specially allocated to the Member or Members that bear the economic
risk of loss associated with the debt;
(iii) If in any year there is a net decrease in "partnership minimum
gain" (as defined in Treasury Regulation Section 1.704-2(d)) or "partner
nonrecourse debt minimum gain" (as defined in Treasury Regulation Section
1.704-2(i)(3), Members will be specially allocated items of income or gain for
such year (and/or subsequent years to the extent necessary) in accordance with
the "minimum gain chargeback" provisions of Treasury Regulation Section
1.704-2(f) and/or Treasury Regulation Section 1.704-2(i)(5); and
(iv) For purposes of (i) calculating a Member's Excess Negative
Balance, (ii) calculating the amount of LLC Capital and (iii) making the
allocations set forth in Section 2.07 hereof, each Member's Capital Account
balance shall be increased by the Member's share of minimum gain and of partner
nonrecourse debt minimum gain (as determined pursuant to Treasury Regulation
Sections 1.704-2(g) and 1.704-2(i)(5), respectively).
2.09 Overriding Allocations of Net Profits and Net Losses.
Notwithstanding the provisions of Section 2.07 above, but subject to the
provisions of Section 2.08 above, the following allocations of Net Profits and
Net Losses and items thereof shall be made:
(a) If, during any year a Member receives any adjustment,
allocation or distribution described in Treasury Regulation Section
1.704-1(b)(2)(ii)(d)(4), (5) or (6), and, as a result of such adjustment,
allocation or distribution, such Member's Capital Account has an Excess Negative
Balance, then items of gross income (computed with the adjustments set forth in
clauses (i), (ii) and (iii) of Section 2.06(f) hereof) for such year (and, if
necessary, subsequent years) shall be allocated to such Member in an amount
equal to such Member's Excess Negative Balance.
(b) In no event shall Net Losses of the LLC be allocated to a
Member if such allocation would cause or increase an Excess Negative Balance in
such Member's Capital Account.
(c) Except as otherwise provided herein or as required by Code
Section 704, for tax purposes, all items of income, gain, loss, deduction or
credit shall be allocated to the Members in the same manner as are Net Profits
and Net Losses; provided, however, that if the Carrying Value of any property of
the LLC differs from its adjusted basis for tax purposes, then items of income,
gain, loss, deduction or credit related to such property for tax purposes shall
be allocated among the Members so as to take account of the variation between
the adjusted basis of the property for tax purposes and its Carrying Value in
the manner provided for under Code Section 704(c).
2.10 Allocations Upon Transfer or Admission. In the event that a Member
acquires an interest in the LLC either by transfer from another Member or by
acquisition from the
-7-
<PAGE> 8
LLC, the LLC shall close its books as of the date of the acquisition and Net
Profits, Net Losses and items thereof computed for the portion of the year
ending on the date of the acquisition shall be allocated among the Members
without regard to such acquisition, and Net Profits, Net Losses and items
thereof computed for the portion of the year commencing on the day following the
date of the acquisition shall be allocated among the Members taking into account
such acquisition. For purposes of determining the date on which the acquisition
is deemed to occur, the LLC may make use of any convention allowable under
Section 706(d) of the Code as may be selected by the Board of Managers in its
absolute discretion.
ARTICLE III
CASH DISTRIBUTIONS
3.01 Definitions. For purposes of this Agreement, the term
"Distributable Cash" means, with respect to any fiscal period, the excess of all
cash receipts of the LLC from any source whatsoever, cash generated from normal
operations, sales of assets, proceeds of borrowings, capital contributions of
the Members, proceeds from a capital transaction, amounts released from
reserves, and any and all other sources over the sum of the following amounts:
(i) any cash disbursements for items which are customarily considered
to be "operating expenses", including salary and bonus payments, employee
benefits costs, travel costs and rental payments for space and equipment;
(ii) payments of interest, principal and premium and points and other
costs of borrowing under any indebtedness of the LLC;
(iii) payments made to purchase capital assets, and for capital
construction, rehabilitation and acquisitions; and
(iv) amounts set aside as reserves for working capital, contingent
liabilities, replacements or for any of the expenditures described in clauses
(i), (ii) and (iii) above which are deemed by the Members to be necessary to
meet the current and anticipated future needs of the LLC.
3.02 Distribution of Distributable Cash. Distributable Cash of the LLC
shall be distributed to the Members, at such times and in such amounts as the
Members may determine, in the proportions which their respective Percentage
Interests bear to each other.
3.03 Distributions in Kind. A Member, regardless of the nature of his
contribution to the LLC, shall have no right to demand or receive any
distribution from the LLC in any form other than cash. The LLC may, at any time
and from time to time, make distributions in kind to the Members. If any assets
of the LLC are distributed in kind, such assets shall be distributed on the
basis of their fair market value as determined by the Members. Any
-8-
<PAGE> 9
Member entitled to any interest in such assets shall, unless otherwise
determined by the Members, receive separate assets of the LLC and not an
interest as a tenant-in-common with other Members so entitled in any asset being
distributed.
3.04 Distributions Upon Transfer or Admission. In the event that a LLC
acquires an interest in the LLC either by transfer from another Member or by
acquisition from the LLC, the LLC shall close its books as of the date of the
acquisition and Distributable Cash and items thereof computed for the portion of
the year ending on the date of the acquisition shall be distributed among the
Members without regard to such acquisition, and Distributable Cash and items
thereof computed for the portion of the year commencing on the day following the
date of the acquisition shall be allocated among the Members taking into account
such acquisition. For purposes of determining the date on which the acquisition
is deemed to occur, the LLC may make use of any convention allowable under
Section 706(d) of the Code selected by the Board of Managers in accordance with
Section 2.10 hereof.
ARTICLE IV
MANAGEMENT
4.01 Management of the LLC.
(a) The business and affairs of the LLC shall be managed by or
under the direction of a Board of Managers, who may exercise all of the powers
of the LLC except as otherwise provided by law or this Agreement (including,
without limitation, Section 4.01(b)). All management and other responsibilities
not specifically reserved to the Members in this Agreement shall be vested in
the Board of Managers.
(b) Notwithstanding the foregoing Section 4.01(a), the LLC shall
not, without the prior written consent of Members owning more than 50% of the
Percentage Interests owned by all Members (a "Majority in Interest of the
Members"), engage in or undertake any of the following actions or activities
(whether by action of the Board of Managers or otherwise):
(i) causing or permitting the LLC (A) to be a party to a merger,
consolidation, share exchange, interest exchange or other transaction authorized
by or subject to the provisions of Section 18-209 of the Act, or (ii) to convert
into any other type of entity;
(ii) causing or permitting the LLC to sell or otherwise dispose of, or
pledge, mortgage or otherwise encumber, (A) all or substantially all of its
assets or (B) any asset, the fair market value or book value of which exceeds
$100,000;
-9-
<PAGE> 10
(iii) causing or permitting the LLC to incur any indebtedness for
borrowed money, or to guarantee any obligation of any other person or entity, in
each case other than in the ordinary course of business of the LLC;
(iv) other than in connection with the Ancillary Agreements,
causing or permitting the LLC to make any capital expenditure with respect to
any project or item or any series of related projects or items in excess of
$100,000;
(v) other than in connection with the Ancillary Agreements,
causing or permitting the LLC to enter into any contract or agreement with a
term in excess of one year or involving payments by or to the LLC in excess of
$100,000 over the term of such contract or agreement (taking into account any
permitted renewals or extensions thereof);
(vi) causing or permitting the LLC to cancel, amend or restate, or
relinquish any material rights under, any Ancillary Agreement or any contract or
agreement of the kind described in clause (v) above to which the LLC is a party;
(vii) causing or permitting the LLC to enter into or engage in any
transaction, contract, agreement or arrangement with a Member, Manager, officer
or employee of the LLC, or an Affiliate of any of the foregoing, in each case
(A) except for the Ancillary Agreements and (B) involving aggregate
consideration the fair market value of which exceeds $100,000;
(viii) causing or permitting the LLC to enter into or engage in any
transaction, contract, agreement or arrangement that (A) is unrelated to the
LLC's purposes (as set forth in Section 1.03), (B) otherwise contravenes the
Certificate or this Agreement, (C) would make it impossible to carry on the
ordinary business of the LLC, or (D) is not for the carrying on of the business
of the LLC in the usual way; and
(ix) causing or permitting the LLC to become Bankrupt or to
commence liquidation (but this provision shall not be construed to require any
Member to ensure the profitability or solvency of the LLC).
4.02 Managers.
(a) The number of Managers who shall constitute the whole
Board of Managers shall be determined by a Majority in Interest of the Members;
provided, that, at all times the majority of the Board of Managers shall be
designated by Summa Four. The number of Managers who shall initially constitute
the whole Board of Managers shall be three (3), two (2) of whom shall be
designated by Summa Four and one (1) to be designated by Junction. Robert A.
Degan and John Shaw shall serve as the Managers initially designated by Summa
Four, and Ted Griggs shall serve as the Manager initially designated by
Junction. Managers need not be Members of the LLC.
-10-
<PAGE> 11
(b) Each Manager shall hold office until his death,
resignation or removal in accordance with the provisions hereof.
(c) Any Manager may resign by delivering his written
resignation to (i) any officer of the LLC designated by the Board of Managers to
receive such resignations and (ii) each other Member. Such resignation shall be
effective upon receipt unless it is specified to be effective at some other time
or upon the happening of some other event.
(d) Any Manager may be removed at any time, with or without
cause, by the Member which designated such person as Manager as set forth in
Section 4.02(a), by delivering written notice of such removal to (i) any officer
of the LLC designated by the Board of Managers to receive such notices, and (ii)
each other Member. Such removal shall be effective upon the giving of the notice
specified in the preceding sentence to each person or entity entitled thereto,
unless such notice is specified to be effective at some other time or upon the
happening of some other event.
(e) Any vacancy on the Board of Managers resulting from the
death, resignation or removal of any Manager shall be filled, as promptly as
practicable, by the Member which designated the Manager whose position has
become vacant, by designating a replacement Manager in a written notice given to
(i) any officer designated by the Board of Managers to receive such notices, and
(ii) each other Member. Such designation of a replacement Manager shall be
effective upon the giving of the notice specified in the preceding sentence to
each person or entity entitled thereto, unless such notice is specified to be
effective at some other time or upon the happening of some other event.
(f) Regular meetings of the Board of Managers may be held
without notice at such time and place as shall be determined from time to time
by the Board of Managers; provided that any Manager who is absent when such a
determination is made shall be given notice of the determination. Special
meetings of the Board of Managers may be held at any time and place designated
in a call by the officer, if one shall be appointed, serving as the chief
executive officer of the LLC or any Manager. Notice of any special meeting of
Managers shall be given to each Manager by the officer or the Manager calling
the meeting. Notice shall be duly given to each Manager (i) by giving notice to
such Manager in person or by telephone at least 24 hours in advance of the
meeting, (ii) by sending a telegram, telex or facsimile transmission, or
delivering written notice by hand, to his last known business or home address at
least 24 hours in advance of the meeting, or (iii) by mailing written notice to
his last known business or home address at least 72 hours in advance of the
meeting. A notice or waiver of notice of a meeting of the Board of Managers need
not specify the purposes of the meeting.
(g) At any meeting of the Board of Managers, the vote of a
majority of all Managers then in office (whether or not present at the relevant
meeting) shall be necessary and sufficient to take any action, unless a
different vote is specified by law, the Certificate or this Agreement.
-11-
<PAGE> 12
(h) Managers or any members of any committee designated by the
Managers may participate in a meeting of the Board of Managers or such committee
by means of conference telephone or similar communications equipment by means of
which all persons participating in the meeting can hear each other, and
participation by such means shall constitute presence in person at such meeting.
Any action required or permitted to be taken at any meeting of the Board of
Managers or of any committee of the Board of Managers may be taken without a
meeting, if the members of the Board or committee, as the case may be, who would
be empowered to take the relevant action at a duly convened meeting of the Board
or committee, as the case may be, consent to the action in writing, and the
written consents are filed with the minutes of proceedings of the Board or
committee.
(i) Committees. The Board of Managers may, by resolution,
designate one or more committees, each committee to consist of one or more of
the Managers of the LLC. Any such committee, to the extent provided in the
resolution of the Board of Managers and subject to the provisions of the Act,
shall have and may exercise all the powers and authority of the Board of
Managers in the management of the business and affairs of the LLC. Each such
committee shall keep minutes and make such reports as the Board of Managers may
from time to time request. Except as the Board of Managers may otherwise
determine, any committee may make rules for the conduct of its business, but
unless otherwise provided by the Managers or in such rules, its business shall
be conducted as nearly as possible in the same manner as is provided in this
Agreement for the Board of Managers.
(j) Compensation of Managers. Managers may be paid such
compensation for their services and such reimbursement for expenses of
attendance at meetings as the Members owning a Majority in Interest of the
Members may from time to time determine. No such payment shall preclude any
Manager from serving the LLC or any of its parent or subsidiary entities in any
other capacity and receiving compensation for such service.
4.03 Officers.
(a) The officers of the LLC shall consist of such officers
with such titles as the Board of Managers shall determine; provided, however,
that, if the Board determines to establish any officer position with a title
expressly referenced in the General Corporation Law of the State of Delaware,
such officer shall, to the maximum extent possible, have the duties and
responsibilities associated with such officer position under the General
Corporation Law of the State of Delaware.
(b) No officer need be a Member or a Manager. Any two or more
offices may be held by the same person.
(c) Except as otherwise provided by law, by the Certificate or
by this Agreement each officer shall hold office until his death, resignation or
removal, unless a different term is specified in the action of the Board of
Managers designating him. Any officer may resign by delivering his written
resignation to any Manager or any officer
-12-
<PAGE> 13
designated by the Board of Managers to receive such resignations. Such
resignation shall be effective upon receipt unless it is specified to be
effective at some other time or upon the happening of some other event. Any
officer may be removed at any time, with or without cause, by the Board of
Managers, by action of the Board of Managers.
(d) Except as the Board of Managers may otherwise determine,
no officer who resigns or is removed shall have any right to any compensation as
an officer for any period following his resignation or removal, or any right to
damages on account of such removal, whether his compensation be by the month or
by the year or otherwise, unless such compensation is expressly provided in a
duly authorized written agreement with the LLC.
(e) The Board of Managers may fill any vacancy occurring in
any office for any reason and may, in its discretion, leave unfilled for such
period as it may determine.
(f) Officers of the LLC shall be entitled to such salaries,
compensation or reimbursement as shall be fixed or allowed from time to time by
the Board of Managers, subject to the provisions of Section 4.01(b).
4.04 Interpretation of Rights and Duties of Managers and Members.
To the fullest extent permitted by the Act and other applicable law, and to the
extent not inconsistent with the specific provisions of this Agreement or the
Certificate, it is the intention of the parties that:
(i) the Board of Managers shall act collectively, and no Manager
acting individually in his capacity as such shall have any right or authority to
bind the LLC; and
(ii) the Members shall have no power or authority whatsoever with
respect to the management of the business and affairs of the LLC.
4.05 Certain Permitted Transactions. Without limitation of any of
its powers set forth in Section 4.01(a) and notwithstanding the provisions of
Section 4.01(b), the Board of Managers is expressly authorized, for, in the name
and on behalf of the LLC, to cause the LLC, with no need for any further consent
or other action of any of the Members, to enter into, and to perform its
obligations under, the Ancillary Agreements to which the LLC is a party.
4.06 Binding the LLC. Except as the Board of Managers may generally
or in any particular case or cases otherwise authorize, and subject to the other
provisions of this Agreement and the Certificate, all deeds, leases, contracts,
bonds, notes, checks, drafts or other obligations made, accepted or endorsed by
the LLC shall be signed by (i) at least two (2) Managers; or (ii) in the event a
chief executive officer is appointed by the Board of Managers, the chief
executive officer.
-13-
<PAGE> 14
4.07 Contracts with Members. In addition to the Ancillary
Agreements, the LLC may engage in business with, or enter into one or more
agreements, leases, contracts or other arrangements for the furnishing to or by
the LLC of goods, services or space with any Member or any affiliate of a
Member, and may pay compensation in connection with such business, goods,
services or space, provided in each case that the relevant agreement, lease,
contract or other arrangement or transaction is, to the extent required under
Section 4.01(b), approved by a Majority in Interest of the Members in accordance
with the provisions of such Section 4.01(b).
4.08 Indemnification and Exculpation.
(a) No Manager shall have any liability to the LLC or to any
Member for any loss suffered by the LLC which arises out of any action or
inaction of such Manager if such Manager determined in good faith that such
course of conduct was in the best interests of the LLC and such course of
conduct did not constitute gross negligence or willful misconduct of such
Manager.
(b) The Members' respective obligations to each other and to
the LLC are limited to the express obligations described in this Agreement and
in the Ancillary Agreements, which obligations the Members shall carry out with
ordinary prudence and in a manner characteristic of business persons in similar
circumstances. Each Member and Manager may, with respect to any vote, consent or
approval that it, he or she is entitled to grant pursuant to this Agreement,
grant or withhold such vote, consent or approval in its, his or her sole and
absolute discretion, with or without cause, and subject to such conditions as
it, he or she shall deem appropriate. The Members acknowledge and agree that
each of (i) the relationship among them as members of the LLC, and (ii) the
relationship of the Managers (solely in their respective capacities as such) to
the LLC, in each case as specified in this Agreement, is, to the maximum extent
permissible under the Act, contractual in nature and not fiduciary. Accordingly,
pursuant to Section 18-1101 of the Act, the Members agree that to the maximum
extent permissible under the Act, (i) each Member's fiduciary and any other
similar duties and obligations to the LLC or any other Member (if any) shall be
eliminated (or, if complete elimination of such duties and obligations is deemed
to be not permissible under the Act, then reduced to the maximum extent
permissible) hereby, and (ii) no Manager shall have any fiduciary or any other
similar duties or obligations to any other person or entity (other than the
Member designating such Manager) by virtue of the Members' execution or
performance of the terms of this Agreement or such Manager's actions in his
capacity as such (or, if complete elimination of such duties and obligations is
deemed to be not permissible under the Act, then such duties and obligations
shall be reduced to the maximum extent permissible), except as may be otherwise
expressly provided herein; provided, however, that nothing contained in this
Section 4.08 shall affect the terms of any relationship or arrangement between
any Manager and the Member that designated such Manager.
(c) Each Manager shall be indemnified by the LLC against any
losses, judgments, liabilities, expenses and amounts paid in settlement of any
claims sustained by it
-14-
<PAGE> 15
with respect to actions taken by such Manager on behalf of the LLC, provided
that no indemnification shall be provided for any person with respect to any
matter as to which he shall have been adjudicated in any proceeding not to have
acted in good faith in the reasonable belief that his action was in the best
interest of the LLC. Without limiting the foregoing, the Board of Managers may
elect (on a case by case basis) to permit such indemnification to include
payment by the LLC of expenses incurred in defending a civil or criminal action
or proceeding in advance of the final disposition of such action or proceeding,
upon receipt of an undertaking by the person indemnified to repay such payment
if he shall be adjudicated not to be entitled to indemnification under this
Section 4.08, which undertaking may be accepted without reference to the
financial ability of such person to make repayment. Any indemnification to be
provided hereunder may be provided although the person to be indemnified is no
longer a Manager.
(d) Notwithstanding the foregoing, no Manager shall be
indemnified for any losses, liabilities or expenses arising from or out of a
violation of federal or state securities laws or any other intentional or
criminal wrongdoing. Any indemnity under this Section 4.08 shall be paid from,
and only to the extent of, LLC assets, and no Member shall have any personal
liability on account thereof in the absence of a separate written agreement to
the contrary. The LLC shall not incur the cost of that portion of any insurance,
other than public liability insurance, which insures any party against any
liability as to which such party is herein prohibited from being indemnified.
4.09 Other Activities. Subject to the compliance with their
respective obligations hereunder and under the Ancillary Agreements, the
Members, Managers and any Affiliates of any of them, may engage in and possess
interests in other business ventures and investment opportunities of every kind
and description, independently or with others, including serving as directors,
officers, stockholders, managers, members and general or limited partners of
corporations, partnerships or other limited liability companies with purposes
similar to those of the LLC. Neither the LLC nor any other Member or Manager
shall have any rights in or to such ventures or opportunities or the income or
profits therefrom.
4.10 Tax Matters Partner. Summa Four shall be the tax matters
partner for the LLC pursuant to Code Sections 6221 through 6231. The tax returns
of the LLC shall be reviewed and approved by each Member prior to filing. Such
approvals shall not be unreasonably withheld.
ARTICLE V
BOOKS, RECORDS AND BANK ACCOUNTS
5.01 Books and Records. The Board of Managers shall keep or cause
to be kept just and true books of account with respect to the operations of the
LLC. Such books shall be maintained at the LLC's principal place of business, or
at such other place as the Board of Managers shall determine, and all Members,
and their duly authorized representatives, shall at
-15-
<PAGE> 16
all reasonable times have access to such books as well as any information
required to be made available to the Members under the Act. The Board of
Managers shall not be required to deliver or mail copies of the LLC's
Certificate or copies of certificates of amendment thereto or cancellation
thereof to the Members, although such documents shall be available for review
and/or copying by the Members at the LLC's principal place of business.
5.02 Accounting Basis and Fiscal Year. The LLC's books shall be
kept on the accrual method of accounting, or on such other method of accounting
as the Board of Managers may from time to time determine, and shall be closed
and balanced at the end of each fiscal year of the LLC. The fiscal year of the
LLC shall end on March 31 of each year.
5.03 Bank Accounts. The Board of Managers, or such officer or
officers as may be designated by the Board of Managers, shall be responsible for
causing one or more accounts to be maintained in a bank (or banks), which
accounts shall be used for the payment of the expenditures incurred by the Board
of Managers in connection with the business of the LLC, and in which shall be
deposited any and all cash receipts of the LLC. All deposits and funds not
needed for the operations of the LLC may be invested in such short-term
investments as the Board of Managers may determine. All such amounts shall be
and remain the property of the LLC, and shall be received, held and disbursed by
the Board of Managers for the purposes specified in this Agreement. There shall
not be deposited in any of said accounts any funds other than funds belonging to
the LLC, and no other funds shall in any way be commingled with such funds.
5.04 Reports to Members. Within 60 days after the end of each
fiscal year, the Board of Managers shall cause the LLC to furnish to each Member
such information as may be needed to enable the Members to file their federal
income tax returns and any required state income tax returns. The cost of such
reporting shall be paid by the LLC as a LLC expense. Any Member may, at any
time, at its own expense, cause an audit of the LLC books to be made by a
certified public accountant of its own selection. All expenses incurred by such
accountant shall be borne by such Member.
ARTICLE VI
TRANSFERS OF INTERESTS OF MEMBERS
6.01 Substitution and Assignment of Member's Interest.
(a) No Member may sell, transfer, assign, pledge, hypothecate
or otherwise dispose of all or any part of its interest in the LLC (whether
voluntarily, involuntarily or by operation of law), unless a Majority in
Interest of the Members shall have previously consented to such assignment in
writing, the granting or denying of which consent shall be in such Members'
absolute discretion, provided, nevertheless, that no such consent shall be
required for any such transfer (i) which is a part of the transfer of
substantially all of the
-16-
<PAGE> 17
assets of Summa Four, whether by merger or otherwise or (ii) which is to an
entity which is wholly owned by Summa Four.
(b) No assignment of the interest of a Member shall be made
if, in the opinion of counsel to the LLC, such assignment (i) may not be
effected without registration under the Securities Act of 1933, as amended, (ii)
would result in the violation of any applicable state securities laws, (iii)
unless consented to by the Members, would result in a termination of the LLC
under Section 708 of the Code or (iv) unless consented to by the Majority in
Interest of the Members, would result in the treatment of the LLC as an
association taxable as a corporation or as a "publicly-traded limited
partnership" for tax purposes. The LLC shall not be required to recognize any
assignment until the instrument conveying such interest has been delivered to
the LLC for recordation on the books of the LLC. Unless an assignee becomes a
substituted Member in accordance with the provisions of Section 6.01(c), it
shall not be entitled to any of the rights granted to a Member hereunder, other
than the right to receive all or part of the share of the Net Profits, Net
Losses, cash distributions or returns of capital to which his assignor would
otherwise be entitled.
(c) An assignee of the interest of a Member, or any portion
thereof, shall become a substituted Member entitled to all the rights of a
Member if, and only if:
(i) the assignor gives the assignee such right;
(ii) a Majority in Interest of the Members consent to such
substitution;
(iii) the assignee or the assignor pays to the LLC all costs and
expenses incurred in connection with such substitution, including specifically,
without limitation, costs incurred in the review and processing of the
assignment and in amending this Agreement; and
(iv) the assignee executes and delivers such instruments, in form
and substance satisfactory to the LLC, as may be necessary or desirable to
effect such substitution and to confirm the agreement of the assignee to be
bound by all of the terms and provisions of this Agreement.
(d) The LLC and the Members shall be entitled to treat the
record owner of any interest in the LLC as the absolute owner thereof in all
respects, and shall incur no liability for distributions of cash or other
property made in good faith to such owner until such time as a written
assignment of such interest has been received and accepted by the Members and
recorded on the books of the LLC. The Members may refuse to accept an assignment
until the end of the next successive quarterly accounting period. In no event
shall any interest in the LLC, or any portion thereof, be sold, transferred or
assigned to a minor or incompetent, and any such attempted sale, transfer or
assignment shall be void and ineffectual and shall not bind the LLC.
-17-
<PAGE> 18
6.02 Additional Members. Except as provided in Section 6.01,
additional Members may be admitted to the LLC only upon the written consent of
Members owning more than 75% of the Percentage Interests owned by all Members (a
"Super Majority in Interest of the Members"), and any such consent shall specify
the capital contribution, Percentage Interest and any other rights and
obligations of such additional Member. Such approval shall bind all Members. In
connection with any such admission, this Agreement (including Schedule A) shall
be amended to reflect the additional Member, its capital contribution, if any,
its Percentage Interest, and any other rights and obligations of the additional
Member.
In connection with any such admission of additional Members, the
Percentage Interests of the Members shall be diluted proportionately, based on
their respective Percentage Interests immediately prior to any such dilution.
Without in any way limiting the foregoing, upon the approval of a Super Majority
in Interest of the Members, the interest of any third party, admitted to the LLC
pursuant to this Section 6.02, in the Net Profits, Net Losses and distributions
of cash or property of any nature may have such priority or priorities in
relationship to the interests therein of the Members; provided that, the
relative priorities of the Members, prior to the admission of any such new
member, in the Net Profits, Net Losses and cash distributions of any nature of
the LLC shall not be altered as a result of the admission of any such new
member.
Each Member, and each person who is hereinafter admitted to the LLC as
a Member, hereby (i) consents to the admission of any such third party on such
terms as a Super Majority in Interest of the Members may determine (subject to
the provisions of this Section 6.02), and to any amendment to this Agreement
which may be necessary or appropriate to reflect the admission of any such third
party and the terms on which it invests in the LLC, and (ii) acknowledges that,
in connection with any admission of any such person, such Member's interest in
allocations of Net Profits and Net Losses and distributions of cash and property
of the LLC, and net proceeds upon liquidation of the LLC, may be diluted or
otherwise altered (subject to the provisions of this Section 6.02). Any
amendment to this Agreement which shall be made in order to effectuate the
provisions of this Section 6.02 shall be executed by Members representing a
Super Majority in Interest of the Members, and any such amendment shall be
binding upon all of the Members. No provision of this Section 6.02 shall be
amended without the express written consent of the Initial Members.
ARTICLE VII
DISSOLUTION AND TERMINATION
7.01 Events Causing Dissolution.
(a) The LLC shall be dissolved upon the earliest of:
(i) [Reserved];
-18-
<PAGE> 19
(ii) a date designated in writing by Members who
hold a Super Majority in Interests of the
Members;
(iii) Subject to Section 7.01(b), the death,
retirement, resignation, expulsion,
bankruptcy or dissolution of a Member (a
merger of a Member may be deemed to be a
dissolution for purposes of this Section
7.01(a)(iii) if a Majority in Interest of
the Members shall so advise the other
Members in writing within 30 days after
having been notified of the merger);
(iv) the sale or other disposition of all of the
LLC's assets;
(v) the entry of a decree of judicial
dissolution under Section 18-802 of the Act;
or
(vi) May 31, 2005.
(b) Notwithstanding the occurrence of an event specified
in Section 7.01(a), the LLC shall not be dissolved and its business and affairs
shall not be discontinued, and the LLC shall remain in existence as a limited
liability company under the laws of the State of Delaware, if Majority in
Interest of the Members elect within 90 days after such occurrence to continue
the LLC and the LLC's business.
(c) Dissolution of the LLC shall be effective on the day
on which the event occurs giving rise to the dissolution, but the LLC shall not
terminate until the LLC's Certificate shall have been canceled and the assets of
the LLC shall have been distributed as provided herein. Notwithstanding the
dissolution of the LLC, prior to the termination of the LLC, as aforesaid, the
business of the LLC and the affairs of the Members, as such, shall continue to
be governed by this Agreement. The Board of Managers or a liquidator appointed
by the remaining Members (who may be a Member), shall liquidate the assets of
the LLC, and distribute the proceeds thereof as contemplated by this Agreement
and cause the cancellation of the LLC's Certificate.
7.02 Distributions Upon Liquidation.
(a) After payment of liabilities owing to creditors, the
liquidator shall set up such reserves as it deems reasonably necessary for any
contingent or unforeseen liabilities or obligations of the LLC. Said reserves
may be paid over by such liquidator to a bank, to be held in escrow for the
purpose of paying any such contingent or unforeseen liabilities or obligations
and, at the expiration of such period as such liquidator may deem advisable,
such reserves shall be distributed to the Members or their assigns in the manner
set forth in paragraph (b) below.
-19-
<PAGE> 20
(b) After paying such liabilities and providing for such
reserves, the liquidator shall cause the remaining net assets of the LLC to be
distributed to all Members in accordance with their Percentage Interests in the
LLC. In the event that any part of such net assets consists of notes or accounts
receivable or other non-cash assets, the liquidator may take whatever steps it
deems appropriate to convert such assets into cash or into any other form which
would facilitate the distribution thereof. If any assets of the LLC are to be
distributed in kind, such assets shall be distributed on the basis of their fair
market value net of any liabilities.
ARTICLE VIII
KEY EMPLOYEES AND CERTAIN OWNERSHIP ADJUSTMENTS;
CONFIDENTIALITY AND NON-COMPETITION
8.01 Key Employee and Certain Ownership Adjustments. A significant
portion of Junction's interest in the LLC is based upon services to be provided
to the LLC by Ted Griggs, a key employee of Junction (the "Key Employee"); and
Summa Four has invested in the LLC with the expectation and in reliance upon the
fact that such services will be provided to the LLC by the Key Employee.
Therefore, it is agreed, and Junction covenants, that until such time as all of
the Junction's right title and interests in the LLC (the "Junction Interest") is
purchased by Summa Four, Junction shall engage the Key Employee to work on the
development and/or testing of the Product on a full time basis ("Full Time
Product Development"). Full Time Product Development means the Key Employee
devotes his entire business time, attention and energies to the development
and/or testing of the Product and other matters necessarily related thereto.
Further, it is agreed that (i) if at any time on or prior to March 31, 1999, the
Key Employee is not engaged in Full Time Product Development, then Junction's
Percentage Interest in the LLC shall be reduced to 5%; and (ii) if at any time
after March 31, 1999, but prior to April 1, 2000, the Key Employee is not
engaged in Full Time Product Development, then Junction's Percentage Interest in
the LLC shall be reduced to 15%. Notwithstanding the foregoing sentence,
Junction's Percentage Interest shall not be reduced in accordance with the
preceding sentence in the event that Summa Four and Junction shall have agreed
in writing, prior to the date that the Key Employee ceases to be in engaged in
Full Time Product Development, to terminate all further development of the
Product. Any reduction in Junction's Percentage Interest in the LLC under this
Section 8.01 shall result in a corresponding increase in Summa Four's Percentage
Interest in the LLC.
8.02 Confidentiality and Non-Competition. Junction acknowledges
that it is a closely held corporation which exists primarily to develop certain
portions of the Product and that its stockholders, directors, employees,
officers and consultants shall in the course of Junction's development and
testing of the Product acquire knowledge of certain proprietary information of
Summa Four and the LLC and, therefore, Junction agrees to cause each of its
stockholders, directors, employees, officers and consultants ("Junction
Insiders"), to enter into confidentiality and non-competition agreements
requiring such Junction Insiders to comply
-20-
<PAGE> 21
with confidentiality and non-competition obligations substantially the same as
those contained in Article 7 of the Junction Subcontract ("Confidentiality and
Non-Competition Agreements"). Junction further agrees that the failure of any of
the Junction Insiders to enter into a Confidentiality and Non-Competition
Agreement in a timely manner or the breach of a Confidentiality and
Non-Competition Agreement by any of the Junction Insiders would cause
substantial and irreparable harm to the LLC and Summa Four. Therefore, Junction
agrees that its Percentage Interest in the LLC (i) shall be reduced to zero in
the event that either Junction or the Key Employee does not enter into a
Confidentiality and Non-Competition Agreement in a timely manner or if either
Junction or the Key Employee shall breach any such Confidentiality and
Non-Competition Agreement and (ii) shall be reduced 5 percentage points (i.e.,
from 25% to 20%, from 20% to 15%, etc.) (A) for each Junction Insider (other
than the Key Employee) who does not enter into a Confidentiality and
Non-Competition Agreement in a timely manner and (B) for each Junction Insider
that breaches any such Confidentiality and Non-Competition Agreement. Junction
agrees that the provisions contained in this Section 8.02 are necessary for the
protection of the business and goodwill of the LLC and Summa Four and,
therefore, agrees that in addition to any remedies contained herein, or such
other remedies which may be available, the LLC and/or Summa Four shall have the
right to injunctive relief.
8.03 Amendment of Article VIII. No provision of this Article shall
be amended without the express written consent of the Initial Members.
ARTICLE IX
BUYOUTS
9.01 Buyout Options. During the period commencing on April 1, 2000
through March 31, 2002 (the "Buyout Period"), Summa Four in its sole and
absolute discretion may require Junction to sell all of the Junction Interest to
Summa Four or its designee (the "Summa Call Option") or Junction in its sole and
absolute discretion may require Summa Four, or Summa Four's designee, to
purchase all of Junction's interest in the LLC (the "Junction Put Option"). The
Summa Call Option and the Junction Put Option are hereinafter collectively
referred to as the "Buyout Options."
9.02 Exercise of Buyout Options.
(a) An Initial Member may only exercise its Buyout Option by
providing notice to the other Initial Member that it is exercising its Buyout
Option (the "Exercise Notice"). The Exercise Notice shall only be effective if
given prior to the end of the tenth business day after the date that Summa
Four's quarterly financial results for any financial quarter during the Buyout
Period are first released by Summa Four for public dissemination. Such notice
shall be deemed to be given (a) on the business day when sent if sent by express
mail, receipt confirmed, or commercial overnight delivery service providing a
receipt for delivery, (b) on
-21-
<PAGE> 22
the date of hand delivery or (c) on the date actually received, if sent by any
other method (the "Buyout Notice Date"). For purposes of this Section, a
"business day" shall mean any Monday, Tuesday, Wednesday, Thursday or Friday
that is not a legal holiday in the State of New Hampshire. The Exercise Notice
shall specify the Buyout Closing Date, the Buyout Purchase Price (as defined
below) and shall be accompanied by a statement of the value of the LLC (the "LLC
Value") as of the last day of Summa Four's fiscal quarter immediately preceding
the Buyout Notice Date (the "Calculation Date"), calculated in accordance with
the relevant valuation formula (the "Valuation Formula") included in the
Valuation and Joint Venture Analysis prepared by Wessels, Arnold & Henderson,
L.L.C., dated January 8, 1998, a copy of which is attached hereto as Schedule E,
and for purposes of the Valuation Formula, the term "SUMA/LLC equipment revenue"
shall have the meaning set forth on Schedule E-1 attached hereto. The price
payable by Summa Four upon the exercise of its Buyout Option (the "Buyout
Purchase Price") shall be (i) in the case of a Summa Call Option, the LLC Value,
including the applicable premium amount specified in the Valuation Formula,
times Junction's Percentage Interest in the LLC as of the Calculation Date, and
(ii) in the case of a Junction Put Option, the LLC Value, less the applicable
discount amount specified in the Valuation Formula, times Junction's Percentage
Interest in the LLC as of the Calculation Date. In the event that Summa Four's
Common Stock is no longer publicly traded as of the Calculation Date, for
purpose of the Valuation Formula, Summa Four shall be deemed not to have
positive earnings and the SUMA LTM Revenue Multiple shall be deemed to be the
same as the SUMA LTM Revenue Multiple at the close of business on the last day
Summa Four's Common Stock was publicly traded; provided, that for the purposes
of this Section 9.02(a), SUMA LTM Revenue shall be based on the publicly
disclosed revenues of Summa Four covering the most recent twelve month period
prior to the Calculation Date.
(b) At Summa Four's option, Summa Four may elect to pay the Buyout
Purchase Price, in whole or in part, in shares of Summa Four Common Stock. In
such case, the value of the Summa Four Common Stock shall equal the average of
the high bid and low ask prices for Summa Four's Common Stock on the Nasdaq
National Market on the Calculation Date (if no shares of Summa Four Common Stock
are traded on the Calculation Date, then the determination of the value of the
Summa Four Common Stock shall be made as of the closest date prior to the
Calculation Date that shares of Summa Four Common Stock were traded on the
Nasdaq National Market).
9.03 Applicability of Article IX to transferees of Junction
Membership Interests. If Junction shall have transferred any of its interest in
the LLC in accordance with Article VI (the "Transferred Interest") to any person
or entity (each, a "Junction Transferee"), then all such Transferred Interests
shall be subject to the Buyout Option and shall be deemed to be part of the
Junction Interest. No such Transferred Interest shall have been effectively
transferred to any Junction Transferee until such Junction Transferee shall have
agreed in writing to be bound by the provisions contained in this Article IX. In
the event that Summa Four shall purchase all of the Junction Interests, pursuant
to the exercise of a Buyout Option, it shall as part of such transaction also
purchase all of the Transferred Interests.
-22-
<PAGE> 23
9.04 Closing of Purchase and Sale of Junction Interest. The closing
(the "Closing") of the purchase and sale of the Junction Interest shall take
place at the principal office of the LLC no later than 60 days after the Buyout
Notice Date (the "Buyout Closing Date").
(a) Closing Other Than Upon Exercise of the Summa Call Option. The Closing,
other than upon the exercise of the Summa Call Option shall be effected by (i)
the delivery by Junction, and, if applicable, any Junction Transferee selling
LLC interests to Summa Four under this Article IX (collectively, the "Buyout
Sellers") to Summa Four of an assignment of such Buyout Seller's Junction
Interest in form and substance reasonably acceptable to Summa Four, containing a
general warranty of title as to such Buyout Seller's Junction Interest
(including, without limitation, that such Junction Interest is not subject to
any liens, pledges, security interests or other encumbrances) against, (ii) the
delivery by Summa Four to such Buyout Seller of 75% of the amount of the Buyout
Purchase Price payable to such Buyout Seller by certified check, wire transfer
of immediately available funds to the bank account designated by such Buyout
Seller, and/or, if Summa Four so elects, shares of Summa Four Common Stock as
provided in Section 9.02(b). Except in the case of a Summa Call Option, for a
period of one year after the entire Junction Interest has been purchased by
Summa Four (the "Final Buyout Closing Date"), Junction shall provide maintenance
and support for the Product on terms reasonably acceptable to Summa Four; and
Junction and Summa Four shall, in good faith, negotiate the terms and conditions
for providing such maintenance and support and shall enter into a maintenance
and support agreement on or prior to the Buyout Closing Date. The remaining 25%
of the amount of any Buyout Purchase Price payable to each such Buyout Seller
(the "Escrow Amount") shall be delivered into escrow until the Final Buyout
Closing Date to secure Junction's obligations under Section 8.02 hereof, Article
7 of the Junction Subcontract and its obligation to provide maintenance and
support during the one year period following the Buyout Closing Date. Failure to
comply with Section 8.02 hereof, Article 7 or breach of its obligations under
the maintenance and support agreement shall terminate Junction's right, and the
rights of any Junction Transferees, to receive the Escrow Amount. Junction and
Summa Four shall, in good faith, negotiate the terms and conditions of an escrow
agreement with respect to the Escrow Amount and shall enter into an escrow
agreement on or prior to the first Buyout Closing Date.
(b) Closing Upon Exercise of the Summa Call Option. The Closing, upon the
exercise of the Summa Call Option shall be effected by (i) the delivery by each
of the Buyout Sellers to Summa Four of an assignment of such Buyout Seller's
Junction Interest in form and substance reasonably acceptable to Summa Four,
containing a general warranty of title as to such Buyout Seller's Junction
Interest (including, without limitation, that such Junction Interest is not
subject to any liens, pledges, security interests or other encumbrances)
against, (ii) the delivery by Summa Four to such Buyout Seller of 100% of the
amount of the Buyout Purchase Price payable to such Buyout Seller by certified
check, wire transfer of immediately available funds to the bank account
designated by such Buyout Seller, and/or, if Summa Four so elects, shares of
Summa Four Common Stock as provided in Section 9.02(b).
-23-
<PAGE> 24
9.05 Buyout Options Not Exercised. If neither Summa Four nor Junction
exercises its Buyout Option prior to the end of the tenth business day after the
date that Summa Four's quarterly financial results for the financial quarter
ended December 31, 2001 have been released for public dissemination (the "Final
Exercise Date"), then May 31, 2002 shall be deemed to be the Buyout Closing Date
and Summa Four shall be obligated to buy and Junction and any and all Junction
Transferees shall be obligated to sell all of the Junction Interests on or prior
to May 31, 2002 in accordance with the provisions set forth in Section 9.02,
except that the Valuation Formula shall not include any discount or premium and
the Calculation Date shall be April 1, 2002. All other provisions of this
Article IX relating to the sale of the Junction Interests, other than the
provisions of Section 9.04(b), shall also apply to a sale made under this
Section 9.05, including, but not necessarily limited to, Summa Four's option to
pay the purchase price in shares of Common Stock, the entering into a
maintenance and support agreement for a term or one year after the Buyout
Closing Date and the escrow arrangement to secure Junction's obligations under
Section 8.02 hereof, Article 7 of the Junction Subcontract and under the
maintenance and support agreement.
9.06 Acquirer's Option.
(a) Exercise of Acquirer's Option. Notwithstanding any other provision
contained herein, in the event that Summa Four shall be acquired by way of
merger, sale of substantially all its assets or otherwise, by a third party (the
"Acquirer"), and such Acquirer does not desire to continue to support the
development and/or marketing of the Product, such Acquirer shall have the
option, exercisable within thirty (30) days after the acquisition by it of Summa
Four, by providing written notice of its decision to exercise the Acquirer's
Option to Junction and all Junction Transferees (collectively referred to as the
Buyout Sellers), to purchase all of the Junction Interests (the"Acquirer's
Option").
(b) Purchase Price of Acquirer's Option. Upon exercise of the
Acquirer's Option, all Buyout Sellers shall be obligated to sell their
respective Junction Interests to the Acquirer. The aggregate purchase price for
all the Junction Interests (the "Acquirer's Purchase Price") shall be
$2,500,000.
(c) Closing Upon Exercise of the Acquirer's Option. The Closing, upon
the exercise of the Acquirer's Option shall be effected by (i) the delivery by
each of the Buyout Sellers to the Acquirer of an assignment of such Buyout
Seller's Junction Interest in form and substance reasonably acceptable to the
Acquirer, containing a general warranty of title as to such Buyout Seller's
Junction Interest (including, without limitation, that such Junction Interest is
not subject to any liens, pledges, security interests or other encumbrances)
against, (ii) (A) the delivery by the Acquirer to such Buyout Seller of 100% of
the amount of the Acquirer's Purchase Price payable to such Buyout Seller by
certified check, wire transfer of immediately available funds to the bank
account designated by such Buyout Seller and (B) the delivery by the Acquirer to
such Buyout Seller of an undertaking whereby the Acquirer
-24-
<PAGE> 25
represents that it will not market or develop the Product at any time in the
future, without the express written consent of the holders of a majority of the
Junction Interests sold to the Acquirer.
9.07 Amendment of Article IX. No provision of this Article shall be
amended without the express written consent of the Initial Members.
ARTICLE X
MISCELLANEOUS
10.01 Notices. Except for notices of meetings of the Board of Managers,
notice of which shall be given in the manner provided in Section 4.02, and
notices in connection with the exercise of a Buyout Option, which shall be given
in the manner provided in Section 9.02, any and all notices under this Agreement
shall be deemed given (a) on the first business day after being sent by express
mail, receipt confirmed, or commercial overnight delivery service providing a
receipt for delivery, (b) on the date of hand delivery or (c) on the date
actually received, if sent by any other method. In order to be effective, all
such notices shall be addressed, if to the LLC (or a specified officer thereof),
at 25 Sundial Avenue, Manchester, NH 03103-7251, and if to a Member or Manager,
at the last address of record on the books of the LLC, and copies of such
notices shall also be sent to the last address for the recipient which is known
to the sender, if different from the address so specified.
10.02 Successors and Assigns. Subject to the restrictions on transfer
set forth herein, this Agreement, and each and every provision hereof, shall be
binding upon and shall inure to the benefit of the Members, their respective
successors, successors-in-title, heirs and assigns, and each and every
successor-in-interest to any Member, whether such successor acquires such
interest by way of gift, purchase, foreclosure, or by any other method, shall
hold such interest subject to all of the terms and provisions of this Agreement.
10.03 Amendments. Except as otherwise specifically provided in this
Agreement (including without limitation, Sections 8.03, 6.02 and 9.07), this
Agreement may be amended or modified only by a Majority in Interest of the
Members; provided that (x) no such amendment shall increase the liability of,
increase the obligations of or adversely affect the interest of, any Member
without the specific approval of such Member; (y) if any provision of this
Agreement provides for the approval or consent of a greater number of Members or
of Members holding a higher percentage of the total Percentage Interests of the
Members, any amendment effectuated pursuant to such provision, and any amendment
to such provision, shall require the approval or consent of such greater number
of Members or of Members holding such higher percentage of the Percentage
Interests.
10.04 Partition. The Members hereby agree that no Member nor any
successor-in-interest to any Member, shall have the right while this Agreement
remains in effect to have
-25-
<PAGE> 26
the property of the LLC partitioned, or to file a complaint or institute any
proceeding at law or in equity to have the property of the LLC partitioned, and
each Member, on behalf of himself, his successors, representatives, heirs and
assigns, hereby waives any such right. It is the intention of the Members that
during the term of this Agreement, the rights of the Members and their
successors-in-interest, as among themselves, shall be governed by the terms of
this Agreement, and that the right of any Member or successor-in-interest to
assign, transfer, sell or otherwise dispose of his interest in the LLC shall be
subject to the limitations and restrictions of this Agreement.
10.05 No Waiver. The failure of any Member to insist upon strict
performance of a covenant hereunder or of any obligation hereunder, irrespective
of the length of time for which such failure continues, shall not be a waiver of
such Member's right to demand strict compliance in the future. No consent or
waiver, express or implied, to or of any breach or default in the performance of
any obligation hereunder, shall constitute a consent or waiver to or of any
other breach or default in the performance of the same or any other obligation
hereunder.
10.06 Entire Agreement. This Agreement constitutes the full and
complete agreement of the parties hereto with respect to the subject matter
hereof.
10.07 Captions. Titles or captions of Articles or sections contained in
this Agreement are inserted only as a matter of convenience and for reference,
and in no way define, limit, extend or describe the scope of this Agreement or
the intent of any provision hereof.
10.08 Counterparts. This Agreement may be executed in a number of
counterparts, all of which together shall for all purposes constitute one
Agreement, binding on all the Members notwithstanding that all Members have not
signed the same counterpart.
10.09 Applicable Law. This Agreement and the rights and obligations of
the parties hereunder shall be governed by and interpreted, construed and
enforced in accordance with the laws of the State of Delaware applicable to
agreements made and to be fully performed therein.
10.10 Dispute Resolution. Any dispute, controversy or claim arising out
of or relating to this Agreement or to a breach hereof, including its
interpretation, performance or termination, shall be submitted to mediation by a
neutral, independent panelist selected by the disputing Members to hear the
dispute and to act as mediator. Such mediation shall not be binding. If such
dispute is not resolved by mediation, it shall be finally resolved by
arbitration. Either party to a dispute may initiate an arbitration by serving a
Notice of Arbitration (the "Notice") upon the other party. The arbitration shall
be conducted by three (3) arbitrators, one to be appointed by each of the
disputing Members within fifteen (15) days after the serving of the Notice and a
third being nominated by the two arbitrators so selected or, if they cannot
agree on a third arbitrator by the date which is thirty (30) days after the
serving of the Notice, then by the President of the American Arbitration
Association by the
-26-
<PAGE> 27
date which is thirty-five (35) days after the serving of the Notice. The
arbitration shall be conducted in accordance with the rules of the American
Arbitration Association, which shall administer the arbitration and act as
appointing authority. The arbitration, including the rendering of the award,
shall take place in Manchester, New Hampshire within sixty (60) days after the
serving of the Notice, and shall be the exclusive forum for resolving such
dispute. The decision of the arbitrators shall be made within ninety (90) days
after the serving of the Notice and shall be binding upon the parties hereto,
and the expense of the arbitration (including without limitation the award of
attorneys' fees to the prevailing party) shall be paid as the arbitrators
determine. The decision of the arbitrators shall be executory, and judgment
thereon may be entered by any court of competent jurisdiction. Notwithstanding
anything contained in this Section 10.10 to the contrary, each party shall have
the right to institute judicial proceedings against the other party or anyone
acting by, through or under such other party, in order to enforce the
instituting party's rights hereunder through reformation of contract, specific
performance, injunction or similar equitable relief.
10.11 Gender, Etc. In the case of all terms used in this Agreement, the
singular shall include the plural and the masculine gender shall include the
feminine and neuter, and vice versa, as the context requires.
10.12 Creditors. None of the provisions of this Agreement shall be for
the benefit of or enforceable by any creditor of any Member or of the LLC other
than a Member who is such a creditor of the LLC.
IN WITNESS WHEREOF, the Members have signed and sworn to this Agreement
under penalties of perjury as of the date first above written.
MEMBERS:
SUMMA FOUR, INC.
By: /s/ Robert A. Degan
----------------------------------
Name: Robert A. Degan
Title: President & CEO
JUNCTION, INC.
By: /s/ Ted Griggs
----------------------------------
Name: Ted Griggs
Title: CEO
-27-
<PAGE> 28
SUMMATION LLC
SCHEDULE A
DESCRIPTION OF PRODUCT
The "Product" is defined as "A Compact PCI, carrier grade switch that
incorporates a standards-based operating system (Windows NT), standards-based
Application Programming Interfaces (S.100 and TAPI 3.0), and standards-based
card level media technology (H.110)."
<PAGE> 29
SUMMATION LLC
SCHEDULE B
NAMES, ADDRESSES AND CAPITAL CONTRIBUTIONS OF THE MEMBERS
<TABLE>
<CAPTION>
Name and Capital Percentage
Business Address Contribution Interest
- ---------------- ------------ --------
<S> <C> <C>
Summa Four, Inc.
25 Sundial Avenue
Manchester, NH 03103-7215 $750 75%*
Junction, Inc.
21040 Homestead Avenue
Suite 205
Cupertino, CA 95014 $250 25%*
</TABLE>
* Subject to Adjustment (See Article VIII)
<PAGE> 30
SCHEDULE C-1
Summa Four License of Technology to Summation LLC
This LICENSE AGREEMENT ("Agreement") dated as of April 3, 1998 (the
"Effective Date") by and between SUMMA FOUR, INC. ("Summa Four"), a Delaware
corporation with offices at 25 Sundial Avenue, Manchester, New Hampshire 03103,
Telecopy No. 603-695-1242, and SUMMATION LLC ("LLC" and together with Summa
Four shall be referred to as the "Parties" to this Agreement), a Delaware
limited liability company with offices at 25 Sundial Avenue, Manchester, New
Hampshire 03103, Telecopy No. 603-695-1242.
WHEREAS, LLC was formed as of the date hereof pursuant to an Operating
Agreement executed by Summa Four and Junction, Inc. (the "Operating Agreement");
WHEREAS, Summa Four has agreed to contribute a license to use certain
Summa Four Technology to the LLC for use in the development of the Product (as
defined in the "Operating Agreement");
NOW, THEREFORE, in consideration of the mutual covenants and promises
contained in this Agreement and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the Parties agree as
follows:
Article I. DEFINITION
As used in this Agreement, "Licensed Rights" means any and all patents
(including without limitation substitutions, extensions, reissues,
reexaminations, renewals, divisions, continuations or continuations-in-part),
copyrights, works of authorship, object code, source code, data bases,
inventions, mask work rights, trademarks, service marks, trade names, logos,
other commercial symbols, trade secrets, know-how, confidential or proprietary
information, other intellectual or industrial property rights, registrations or
applications for any of the foregoing, and other information with respect to the
Product which is, as of the Effective Date, owned, possessed or controlled by
Summa Four or which Summa Four has the right to use and sublicense.
Article II. CONTRIBUTION OF LICENSED RIGHTS
2.1. Contribution. As consideration for its ownership interest in LLC,
Summa Four hereby grants to the LLC a non-transferable, paid-up, royalty-free,
non-exclusive, license in the Licensed Rights, including all rights to modify
and enhance and rights to license or sublicense any or all of such rights solely
for use in the development and/or testing of the Product.
<PAGE> 31
2.2. Transfer of Information. Summa Four shall provide LLC with
reasonable technical assistance in order to transfer to LLC all information and
documentation related to the Licensed Rights.
Article III. REPRESENTATIONS, WARRANTIES AND COVENANTS
3.1. Representations, Warranties and Covenants of Summa Four. Summa
Four hereby represents, warrants and covenants that:
(a) it has the legitimate and full authority (i) to grant the
License Rights to the LLC and (ii) to enter into and perform all of the terms of
this Agreement;
(b) there is no provision in its Certificate of Incorporation or
By-Laws, and no provision in any existing mortgage, indenture, contract or
agreement binding on it which would be contravened by the execution, delivery or
performance by it of this Agreement;
(c) no consent of any trustee or holder of any of its indebtedness
is or shall be required as a condition to the validity of this Agreement;
(d) there is no action or proceeding pending or insofar as it
knows or ought to know threatened against it before any court, administrative
agency or other tribunal which might have a material adverse effect on its
business or condition, financial or otherwise. Summa Four knows of no claim by
any third party of infringement or misappropriation by Summa Four on such
party's patent, trademark, service mark, copyright, mask work, trade secret or
other intellectual property rights;
(e) Subject to the rights of licensors with respect to any
property included in the Licensed Rights which has been licensed to Summa Four,
the Licensed Rights are free and clear of all liens, pledges, easements,
mortgages, security interests, charges, clouds, restrictions and other
encumbrances. The use by LLC of the Licensed Rights (in their form as of the
Effective Date) shall not infringe on, or constitute a misappropriation of, any
third-party rights, including intellectual property rights;
(f) By accepting the Licensed Rights, LLC shall not be assuming
any liabilities, debts or other obligations associated with the Licensed Rights
which result from acts or omissions of Summa Four or any other person or party
on or before the Effective Date.
3.2. Representations and Warranties of LLC. LLC hereby represents,
warrants, and covenants that it has requisite corporate power and authority to
enter into and perform all of the terms of this Agreement.
Article IV. CERTAIN INTELLECTUAL PROPERTY MATTERS
-2-
<PAGE> 32
4.1. Indemnity by Summa Four.
(a) Except as provided in subsection (b) below, Summa Four shall
defend and indemnify LLC from and hold LLC harmless against any damages,
liabilities, costs and expenses (including reasonable attorneys' fees and court
costs) either: (i) arising out of any claim that LLC's practice or use of the
Licensed Rights infringes an intellectual property right or represents a
misappropriation of a trade secret of a third party, or (ii) resulting from or
caused by or claimed to have resulted from any use of the Licensed Rights prior
to the Effective Date, whether based on negligence, strict liability or other
grounds.
(b) Summa Four shall have no liability or obligation to LLC under
this Section 4.1 with respect to any claim based solely upon: (i) modifications
and/or improvements of the Licensed Rights introduced by LLC or its customers;
(ii) any modification of any of the technology included in the Licensed Rights
or the combination of such technology with technology not supplied by Summa
Four; or (iii) an intentional tortious act or the gross negligence of LLC. In
the event a claim is based partially on an indemnified claim described in
Section 4.1(a) above and partially on a non-indemnified claim described in this
Section 4.1(b), any payments and reasonable attorney fees incurred in connection
with such claim are to be apportioned between the Parties in accordance with the
degree of cause attributable to each Party.
(c) Each Party shall promptly provide the other Party hereto with
written notice of any claim against it with respect to the matters described in
this Section 4.1. Each Party shall provide reasonable cooperation, information,
and assistance to the other Party in connection therewith.
(d) Summa Four shall have sole control and authority with respect
to the defense, settlement and compromise of any claim against either Party with
respect to the matters described in Sections 4.1(a) above, except that any
settlement or compromise of such a claim shall require LLC's prior written
consent, which consent shall not be unreasonably withheld.
4.2 Confidentiality. The LLC agrees that the Licensed Rights constitute
proprietary information ("Proprietary Information") of Summa Four and the LLC
agrees to hold in confidence all such Proprietary Information and not disclose
(except on a confidential basis to its employees or subcontractors who need to
know in connection with the development of the Product and who are bound to
preserve the confidentiality thereof) any such Proprietary Information.
-3-
<PAGE> 33
Article V. MISCELLANEOUS
5.1. Governing Law; Dispute Resolution.
(a) This Agreement shall be governed, interpreted and construed in
accordance with the laws of the State of New Hampshire applicable to agreements
made and to be fully performed therein.
(b) Any dispute, controversy or claim arising out of or relating
to this Agreement. or to a breach thereof, including its interpretation or
performance, shall be submitted to and finally resolved by arbitration. The
arbitration shall be conducted in accordance with the commercial rules of the
American Arbitration Association (AAA), which shall administer the arbitration
and act as appointing authority. The arbitration, including the rendering of the
award, shall take place in Manchester, New Hampshire, and shall be the exclusive
forum for resolving such dispute, controversy or claim. The arbitration shall be
conducted by three (3) arbitrators, one (1) to be appointed by Summa Four, one
(1) to be appointed by LLC and the remaining arbitrator being nominated by the
arbitrators so selected or, if they cannot agree on the remaining arbitrator, by
the President of the AAA. The decision of the arbitrators shall be executory,
final and binding upon the Parties hereto, and the expense of the arbitration
(including without limitation the award of attorneys' fees to the prevailing
Party) shall be paid as the arbitrators determine. Judgment upon the award of
the arbitration may be entered in any court where the arbitration takes place or
any court having jurisdiction thereof, and application may be made to any court
for a judicial acceptance of the award or order of enforcement. Notwithstanding
anything contained in this Section 5.1(b) to the contrary, each Party shall have
the right to institute judicial proceedings against the other Party or anyone
acting by, through or under such other Party in order to enforce the instituting
Party's rights hereunder through reformation of contract, specific performance,
injunction or similar equitable relief.
(c) In the event of a breach or violation of any of the provisions
hereof by either Party, the non-breaching Party shall not have any right to
terminate, rescind or revoke this Agreement.
5.2. Entire Agreement. This Agreement contains the full understanding
of the Parties with respect to the subject matter hereof and supersedes all
prior understandings and writings relating thereto. No waiver, alteration,
amendment or modification of any of the provisions hereof shall be binding
unless made in writing and signed by both Parties.
5.3. Severability. In the event that any provision of this Agreement is
held by a court of competent jurisdiction to be unenforceable because it is
invalid or in conflict with any law of any relevant jurisdiction, the validity
of the remaining provisions shall not be affected.
-4-
<PAGE> 34
5.4. Successors and Assigns. This Agreement shall be binding upon and
inure to the benefit of the Parties hereto and their respective successors and
assigns.
5.5. Counterparts. This Agreement may be executed in multiple
counterparts, each of which shall be deemed an original, but all of which taken
together shall constitute one and the same instrument.
IN WITNESS WHEREOF, the Parties hereto have signed this Agreement.
SUMMA FOUR, INC.
By___________________________________
Name:
Title:
SUMMATION LLC
By___________________________________
Name:
Title:
-5-
<PAGE> 35
SCHEDULE C-2
Assignment by Junction of Rights with Respect to Product
This ASSIGNMENT AGREEMENT ("Agreement") dated as of April 3, 1998 (the
"Effective Date") by and between JUNCTION, INC. ("Junction"), a Delaware
corporation with offices at 25 Sundial Avenue, Manchester, New Hampshire 03103,
Telecopy No. 603-695- 1242, and SUMMATION LLC ("LLC" and together with Junction
shall be referred to as the Parties to this Agreement), a Delaware limited
liability company with offices at 25 Sundial Avenue, Manchester, New Hampshire
03103, Telecopy No. 603-695-1242.
WHEREAS, LLC was formed as of the date hereof pursuant to an Operating
Agreement executed by Junction and Summa Four, Inc. (the "Operating Agreement");
WHEREAS, Junction has agreed contribute all of its right title and
interest in the Product (as defined in the "Operating Agreement") pursuant to an
assignment agreement;
NOW, THEREFORE, in consideration of the mutual covenants and promises
contained in this Agreement and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the Parties agree as
follows:
Article I. DEFINITION
As used in this Agreement, "Assigned Rights" means any and all patents
(including without limitation substitutions, extensions, reissues,
reexaminations, renewals, divisions, continuations or continuations-in-part),
copyrights, works of authorship, object code, source code, data bases,
inventions, mask work rights, trademarks, service marks, trade names, logos,
other commercial symbols, trade secrets, know-how, confidential or proprietary
information, other intellectual or industrial property rights, registrations or
applications for any of the foregoing, and other information with respect to the
Product which is, as of the Effective Date, owned, possessed or controlled by
Junction or which Junction has the right to use.
Article II. ASSIGNMENT AND TRANSFER OF RIGHTS
2.1. Assignment. As partial consideration for its ownership interest in
LLC, Junction hereby sells, assigns, conveys and otherwise transfers to LLC all
of its right, title, and interest throughout the world in the Product and the
Assigned Rights, including all rights to license or sublicense any or all of
such rights.
<PAGE> 36
2.2. Transfer of Information. Junction shall provide LLC with
reasonable technical assistance in order to transfer to LLC all information and
documentation related to the Product and the Assigned Rights, so that LLC may
exploit the rights assigned in Section 2.1 above.
Article III. REPRESENTATIONS, WARRANTIES AND COVENANTS
3.1. Representations, Warranties and Covenants of Junction. Junction
hereby represents, warrants and covenants that:
(a) it has the legitimate and full authority (i) to sell, convey,
assign and otherwise transfer to LLC all of the rights, title and interests
which it may have throughout the world in the Product and the Assigned Rights,
including all rights to license or sublicense any or all of such rights, and
(ii) to enter into and perform all of the terms of this Agreement;
(b) there is no provision in its Certificate of Incorporation or
By-Laws, and no provision in any existing mortgage, indenture, contract or
agreement binding on it which would be contravened by the execution, delivery or
performance by it of this Agreement;
(c) no consent of any trustee or holder of any of its indebtedness
is or shall be required as a condition to the validity of this Agreement;
(d) there is no action or proceeding pending or insofar as it
knows or ought to know threatened against it before any court, administrative
agency or other tribunal which might have a material adverse effect on its
business or condition, financial or otherwise. Junction knows of no claim by any
third party of infringement or misappropriation by Junction on such party's
patent, trademark, service mark, copyright, mask work, trade secret or other
intellectual property rights;
(e) Junction has not, and shall not in the future, grant rights or
licenses to any person or entity with respect to the Product or the Assigned
Rights. The Product and the Assigned Rights are free and clear of all liens,
pledges, easements, mortgages, security interests, charges, clouds, restrictions
and other encumbrances. The use by LLC of the Product and the Assigned Rights
(in their form as of the Effective Date) shall not infringe on, or constitute a
misappropriation of, any third-party rights, including intellectual property
rights;
(f) By accepting the assignment described herein, LLC shall not be
assuming any liabilities, debts or other obligations associated with the Product
or the Assigned Rights which result from acts or omissions of Junction or any
other person or party on or before the Effective Date.
-2-
<PAGE> 37
3.2. Representations and Warranties of LLC. LLC hereby represents,
warrants, and covenants that it has requisite corporate power and authority to
enter into and perform all of the terms of this Agreement.
Article IV. INTELLECTUAL PROPERTY MATTERS
4.1. Ownership. Immediately upon effecting the assignment described in
Section 2.1 above, LLC shall own the entire right, title and interest in and to
the Assigned Rights. LLC shall have the exclusive right at its expense: (a) to
file, prosecute, and maintain applications and registrations for the Assigned
Rights; (b) to enforce claims of infringement of the Assigned Rights or
misappropriation or unauthorized use of the Assigned Rights; and (c) to defend
claims of infringement or misappropriation or unauthorized use that may arise
out of the use of the Product or the Assigned Rights.
4.2. Assistance. Junction shall provide to LLC (and its authorized
attorneys, agents and representatives) reasonable cooperation and assistance as
necessary for LLC to exploit its right, title and interest set forth in Section
4.1 above, including joining (at Junction's expense), if requested by LLC, as a
party to any suit or other proceeding. Junction shall execute all legal
documents necessary to file, prosecute, maintain and enforce applications or
registrations or to record the assignment described herein, at no charge to LLC.
4.3. Indemnity by Junction.
(a) Except as provided in subsection (b) below, Junction shall
defend and indemnify LLC from and hold LLC harmless against any damages,
liabilities, costs and expenses (including reasonable attorneys' fees and court
costs) either: (i) arising out of any claim that LLC's practice or use of the
Product or the Assigned Rights infringes an intellectual property right or
represents a misappropriation of a trade secret of a third party, or (ii)
resulting from or caused by or claimed to have resulted from any sale or use of
the Assigned Rights prior to the Effective Date, whether based on negligence,
strict liability or other grounds.
(b) Junction shall have no liability or obligation to LLC under
this Section 4.3 with respect to any claim based solely upon: (i) modifications
and/or improvements of the Product or the Assigned Rights introduced by LLC or
its customers; (ii) any modification of any technology included in the Assigned
Rights, or the combination of such technology with technology not supplied by
Junction; or (iii) an intentional tortious act or the gross negligence of LLC.
In the event a claim is based partially on an indemnified claim described in
Section 4.3(a) above and partially on a non-indemnified claim described in this
Section 4.3(b), any payments and reasonable attorney fees incurred in connection
with such claim are to be apportioned between the Parties in accordance with the
degree of cause attributable to each Party.
-3-
<PAGE> 38
(c) Each Party shall promptly provide the other Party hereto with
written notice of any claim against it with respect to the matters described in
this Section 4.3. Each Party shall provide reasonable cooperation, information,
and assistance to the other Party in connection therewith.
(d) LLC shall have sole control and authority with respect to the
defense, settlement and compromise of any claim against either Party with
respect to the matters described in Sections 4.3(a)(i) above, except that any
settlement or compromise of such a claim shall require Junction's prior written
consent, which consent shall not be unreasonably withheld. Junction shall have
sole control and authority with respect to the defense, settlement and
compromise of any claim against either Party with respect to the matters
described in Sections 4.3(a)(ii) above, except that any settlement or compromise
of such a claim shall require LLC's prior written consent, which consent shall
not be unreasonably withheld.
Article V. MISCELLANEOUS
5.1. Governing Law; Dispute Resolution.
(a) This Agreement shall be governed, interpreted and construed in
accordance with the laws of the State of New Hampshire applicable to agreements
made and to be fully performed therein.
(b) Any dispute, controversy or claim arising out of or relating
to this Agreement or to a breach thereof, including its interpretation or
performance, shall be submitted to and finally resolved by arbitration. The
arbitration shall be conducted in accordance with the commercial rules of the
American Arbitration Association (AAA), which shall administer the arbitration
and act as appointing authority. The arbitration, including the rendering of the
award, shall take place in Manchester, New Hampshire, and shall be the exclusive
forum for resolving such dispute, controversy or claim. The arbitration shall be
conducted by three (3) arbitrators, one (1) to be appointed by Junction, one (1)
to be appointed by LLC and the remaining arbitrator being nominated by the
arbitrators so selected or, if they cannot agree on the remaining arbitrator, by
the President of the AAA. The decision of the arbitrators shall be executory,
final and binding upon the Parties hereto, and the expense of the arbitration
(including without limitation the award of attorneys' fees to the prevailing
Party) shall be paid as the arbitrators determine. Judgment upon the award of
the arbitration may be entered in any court where the arbitration takes place or
any court having jurisdiction thereof, and application may be made to any court
for a judicial acceptance of the award or order of enforcement. Notwithstanding
anything contained in this Section 5.1(b) to the contrary, each Party shall have
the right to institute judicial proceedings against the other Party or anyone
acting by, through or under such other Party in order to enforce the instituting
Party's rights hereunder through reformation of contract, specific performance,
injunction or similar equitable relief.
-4-
<PAGE> 39
(c) In the event of a breach or violation of any of the provisions
hereof by either Party, the non-breaching Party shall not have any right to
terminate, rescind or revoke this Agreement.
5.2. Entire Agreement. This Agreement contains the full understanding
of the Parties with respect to the subject matter hereof and supersedes all
prior understandings and writings relating thereto. No waiver, alteration,
amendment or modification of any of the provisions hereof shall be binding
unless made in writing and signed by both Parties.
5.3. Severability. In the event that any provision of this Agreement is
held by a court of competent jurisdiction to be unenforceable because it is
invalid or in conflict with any law of any relevant jurisdiction, the validity
of the remaining provisions shall not be affected.
5.4. Successors and Assigns. This Agreement shall be binding upon and
inure to the benefit of the Parties hereto and their respective successors and
assigns.
5.5. Counterparts. This Agreement may be executed in multiple
counterparts, each of which shall be deemed an original, but all of which taken
together shall constitute one and the same instrument.
IN WITNESS WHEREOF, the Parties hereto have signed this Agreement.
JUNCTION, INC.
By:_____________________________
Name:
Title:
SUMMATION LLC
By:_____________________________
Name:
Title:
-5-
<PAGE> 40
SCHEDULE E
VALUATION AND JOINT VENTURE ANALYSIS
PREPARED BY WESSELS, ARNOLD & HENDERSON, L.L.C.
DATED JANUARY 8, 1998
<PAGE> 41
SUMMA FOUR, INC.
JUNCTION, INC.
Valuation and Joint Venture Analysis
Wessels, Arnold & Henderson, L.L.C.
January 8, 1998
<PAGE> 42
Table of Contents
<TABLE>
<CAPTION>
Tab Contents Page
--- -------- ----
<S> <C>
I. Overview of Assignment 1
II. Summa Four/Junction Total Valuation 3
III. LLC Ownership Allocation 5
IV. Valuation Formulas Regarding the LLC Options 10
A. Valuation Formulas Regarding the LLC Options
B. Discounts/Premiums Assigned to the LLC Options
C. Standards Relating to Dilution Discount
V. Summa Four/Junction Total Valuation 20
</TABLE>
Appendices
A. Projected Income Statements
B. Comparable Technology Merger and Acquisition Transactions
<PAGE> 43
OVERVIEW OF ASSIGNMENT
1
<PAGE> 44
Overview of Assignment
We have been asked by Summa Four and Junction to perform two principle valuation
analyses:
- - Determine the Respective Ownership Interests of Summa Four and Junction
in the LLC
- - Develop Valuation Formulas Regarding the LLC Options
- Valuation Formula for the LLC
- Discounts/Premiums Assigned to the LLC Options
- Standards Relating to Dilution Discount
2
<PAGE> 45
SUMMA FOUR/JUNCTION
TOTAL VALUATION
3
<PAGE> 46
Summa Four/Junction Total Valuation(1)
Revenue and Earnings Based Formula
<TABLE>
<CAPTION>
Date When Type of Summa Four Junction Total LLC
Option is Exercised Exercise Shareholders Shareholders Valuation
------------------- -------- ------------ ------------ ---------
<S> <C> <C> <C> <C>
March 2000 Call $18,044 $ 6,015 $24,059
March 2000 Put $10,481 $ 3,494 $13,974
March 2001 Call $42,692 $14,231 $56,923
March 2001 Put $25,289 $ 8,430 $33,719
March 2002 N/A $74,466 $24,822 $99,288
</TABLE>
Revenue-Based Formula(2)
<TABLE>
<CAPTION>
Date When Type of Summa Four Junction Total LLC
Option is Exercised Exercise Shareholders Shareholders Valuation
------------------- -------- ------------ ------------ ---------
<S> <C> <C> <C> <C>
March 2000 Call $ 9,949 $3,316 $13,265
March 2000 Put $ 5,779 $1,926 $ 7,705
March 2001 Call $19,936 $6,645 $26,581
March 2001 Put $11,809 $3,936 $15,745
March 2002 N/A $29,771 $9,924 $39,695
</TABLE>
(1) Derived from projected income statements provided by Summa Four and
Junction.
(2) Based on projections provided by Summa Four and Junction, the
Revenue-Based Formula would not be applicable.
4
<PAGE> 47
LLC OWNERSHIP ALLOCATION
5
<PAGE> 48
LLC Ownership Cost Allocation Analysis
<TABLE>
<CAPTION>
Contribution Period
15 months
<S> <C> <C>
SUMA's Contribution to LLC $ 4,603
Present Value on 1/1/98 $ 4,212
Junction's Contribution to LLC $ 689
Present Value on 1/1/98 $ 630
LLC Ownership Analysis $ . %
------- -------
Present Value of SUMA's Contribution 4,212 87.0%
Present Value of Junction's Contribution 630 13.0%
</TABLE>
6
<PAGE> 49
Intellectual Property Ownership Analysis
As an additional point of reference and analysis, we examined employee ownership
in recent Networking and Communications initial public offering.
<TABLE>
<CAPTION>
# of Preliminary % Employee % Employee
Shares out. Shares Shares Out. Employee Owned Shares Owned Shares
IPO Date Company Pre-Offering Offered(1) Post Offering Shares (2) Pre-Offering Post-Offering
- -------- ------- ------------ ---------------- ------------- ---------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C>
11/12/97 Hybrid Networks 10,299,647 2,700,000 12,999,647 3,798,454 36.9% 29.2%
11/4/97 Excel Switching Corporation 38,898,240 4,500,000 43,398,240 8,384,160 21.6% 19.3%
10/28/97 MMC Networks, Inc. 25,101,708 3,500,000 28,601,708 3,344,548 13.3% 11.7%
10/15/97 Concord Communications, 11,155,979 2,300,000 13,455,979 2,448,023 21.9% 18.2%
Inc.
7/29/97 Galileo Technology Ltd. 17,457,096 3,000,000 20,457,096 4,369,941 25.0% 21.4%
6/16/97 Genesys Telecomm. 24,058,590 2,000,000 26,058,590 9,760,635 40.6% 37.5%
Laboratories, Inc.
2/7/97 CIENA Corporation 99,765,285 5,000,000 104,765,285 20,045,155 20.1% 19.1%
2/5/97 Yurie Systems, Inc. 23,995,122 4,000,000 27,995,122 4,259,822 17.8% 15.2%
11/20/96 Geotel Communications 11,478,949 2,200,000 13,678,949 2,114,096 18.4% 15.5%
Corp.
9/30/96 Advanced Fibre 28,863,865 4,500,000 33,363,865 9,219,658 31.9% 27.6%
Communications, Inc.
8/9/96 Aware, Inc. 18,167,555 3,400,000 21,567,555 8,665,809 47.7% 40.2%
3/11/96 Xylan Corporation 42,579,827 3,200,000 45,779,827 15,078,709 35.4% 32.9%
5/3/95 ACT Networks, Inc. 4,918,051 2,500,000 7,418,051 680,225 13.8% 9.2%
4/5/95 Premisys Communications 10,502,243 2,000,000 12,502,243 1,742,900 16.6% 13.9%
11/17/94 Shiva Corporation 9,763,426 1,705,133 11,468,559 2,299,424 23.6% 20.0%
7/28/94 Cascade Communications 12,636,841 2,000,000 14,636,841 1,910,783 15.1% 13.1%
Corp.
5/24/94 FORE Systems 11,754,193 2,000,000 13,754,193 1,920,402 16.3% 14.0%
5/12/94 Ascend Communications, 10,247,133 1,882,000 12,129,133 1,324,886 12.9% 10.9%
Inc.
1/31/94 Digital Link Corporation 7,752,388 1,900,000 9,652,388 1,403,227 18.1% 14.5%
Mean: 23.5% 20.2%
Median: 20.1% 18.2%
</TABLE>
(1) The IPO size excludes the underwriters' over-allotment option.
(2) Employee owned shares includes outstanding shares and options at the
time of IPO and excludes shares reserved for future issuance under any
stock option plans.
7
<PAGE> 50
LLC Ownership Allocation Analysis
Contribution Period
<TABLE>
<CAPTION>
15 months
<S> <C> <C>
SUMA's Contribution to LLC $ 4,603
Present Value on 1/1/98 $ 4,212
Junction's Contribution to LLC $ 689
Junction's Intangible Contribution(1) $ 845
Present Value on 1/1/98 $ 1,404
LLC Ownership Analysis $ . %
------- -------
Present Value of SUMA's Contribution 4,212 75.0%
Present Value at Junction's Contribution 1,404 25.0%
</TABLE>
(1) Carried interest relating to development rights.
8
<PAGE> 51
LLC Ownership Allocation
- - Summa Four Ownership: 75.0%
- - Junction Ownership: 25.0%
9
<PAGE> 52
VALUATION FORMULAS REGARDING
THE LCC OPTIONS
10
<PAGE> 53
Valuation Formulas for the LLC
- - LLC VALUATION FORMULA IF SUMA OR LLC DO NOT HAVE EARNINGS:
[ (SUMA LTM Revenue Multiple) (LTM LLC Revenue) ] x [ 1 - Private
Company Discount ]
- - LLC VALUATION FORMULA IF SUMA AND LLC DO HAVE POSITIVE EARNINGS:
[ [ (LTM LLC Revenue) (1.4)1 (40%)2 ] + [ (SUMA LTM EPS Multiple)
(LTM LLC Earnings) (60%)3 ] ] x [ 1 - Private Company Discount ]
(1) Represents historical technology merger and acquisition transaction
sales multiples.
(2) Represents the relative weight to be placed on revenue, as opposed to
earnings.
(3) Represents the relative weight to be placed on earnings, as opposed to
revenue.
11
<PAGE> 54
No Earnings for SUMA or LLC - Option Exercised on March 31, 2000
Example #1
Option Exercised on March 31, 2000
<TABLE>
<S> <C> <C>
SUMA LTM Revenue Multiple(1) 1.31 x
LTM LLC Revenue $11,751
Revenue-based LLC Market Capitalization $15,394
Less: Private Company Discount 30.0% $ 4,618
-------
LLC Valuation $ 10,776
========
</TABLE>
<TABLE>
<CAPTION>
% Premium Price
LLC Valuation or Discount Paid
------------- ------------- -------------
<S> <C> <C> <C>
If Call is Exercised $10,776 23.1% $13,265
If Put is Exercised $10,776 28.5% $ 7,705
</TABLE>
(1) This example assumes that the revenue multiple as of December 29, 1997
will be the same on March 31, 2000. Of course, when the option is
exercised, the revenue multiple that exists at such time would be used.
LTM revenue multiple is equal to the Company's market capitalization
(stock price times shares outstanding) on the date the option is
exercised divided by the Company's DTM revenues.
12
<PAGE> 55
No Earnings for SUMA or LLC - Option Exercised on March 31, 2001
Example #2
Option Exercised on March 31, 2001
<TABLE>
<S> <C> <C>
SUMA LTM Revenue Multiple(1) 1.31 x
LTM LLC Revenue $23,079
Revenue-based LLC Market Capitalization $30,233
Less: Private Company Discount 30.0% $9,070
-------
LLC Valuation $21,163
=======
</TABLE>
<TABLE>
<CAPTION>
% Premium Price
LLC Valuation or Discount Paid
------------- ------------- -------------
<S> <C> <C> <C>
If Call is Exercised $21,163 25.6% $26,581
If Put is Exercised $21,163 25.6% $15,745
</TABLE>
(1) This example assumes that the revenue multiple as of December 29, 1997
will be the on March 31, 2000. Of course, when the option is exercised,
the revenue multiple that exists at such time would be used. LTM
revenue multiple is equal to the Company's market capitalization (stock
price times shares outstanding) on the date the option is exercised
divided by the Company's DTM revenues.
13
<PAGE> 56
LLC Valuation Matrix
No Earnings for SUMA or LLC
This matrix illustrates the potential effect the LTM revenue of the LLC and the
LTM revenue multiple of SUMA has on the LLC valuation.
LLC LTM Revenue
<TABLE>
<CAPTION>
10,000 20,000 30,000 40,000 50,000
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
SUMA LTM 0.5 x $ 3,500 $ 7,000 $10,500 $14,000 $17,500
Revenue 1.0 x $ 7,000 $14,000 $21,000 $28,000 $35,000
Multiple 1.5 x $10,500 $21,000 $31,500 $42,000 $52,500
2.0 x $14,000 $28,000 $42,000 $56,000 $70,000
</TABLE>
14
<PAGE> 57
Positive Earnings for SUMA or LLC - Option Exercised on March 31, 2000
Example #1
Option Exercised on March 31, 2000
<TABLE>
<S> <C> <C>
Historical Technology Net Sales Transaction Multiples 1.4 x
LTM LLC Revenue $11,751
-------
Revenue-based LLC Market Capitalization $16,451
Revenue weighting 40.0%
-------
$ 6,580
Industry LTM EPS Multiple(1) 30.9 x
LTM LLC Earnings $ 1,151
-------
Earnings Based Market Capitalization $35,566
Earnings weighing 60.0%
-------
$21,340
-------
Weighted average market capitalization $27,920
Less: Private Company Discount 30.0% $ 8,376
-------
LLC Valuation $19,544
=======
</TABLE>
<TABLE>
<CAPTION>
LLC % Premium Price
Valuation or Discount Paid
----------- ----------- -----------
<S> <C> <C> <C>
If Call is Exercised $19,544 23.1% $24,059
If Put is Exercised $19,544 28.5% $13,974
</TABLE>
(1) As SUMA's current LTM EPS multiple is negative, this example uses an
industry LTM EPS multiple composed of Tom Erickson's research universe
as of 12/29/97. Of course, when the option is exercised, the SUMA LTM
EPS multiple that exists at such time would be used. LTM EPS multiple
is equal to the Company's stock price on the date the option is
exercised divided by the Company's LTM earnings per share.
15
<PAGE> 58
Positive Earnings for SUMA or LLC - Option Exercised on March 31, 2001
Example #2
Option Exercised on March 31, 2000
<TABLE>
<S> <C> <C>
Historical Technology Net Sales Transaction Multiples 1.4 x
LTM LLC Revenue $23,079
-------
Revenue-based LLC Market Capitalization $32,311
Revenue weighing 40.0%
-------
$12,924
Industry LTM EPS Multiple(1) 30.9 x
LTM LLC Earnings $ 2,795
-------
Earnings Based Market Capitalization $86,366
Earnings weighing 60.0%
-------
$51,820
-------
Weighted average market capitalization $64,744
Less: Private Company Discount 30.0% $19,423
-------
LLC Valuation $45,321
=======
</TABLE>
<TABLE>
<CAPTION>
LLC % Premium Price
Valuation or Discount Paid
--------- ----------- -------
<S> <C> <C> <C>
If Call is Exercised $45,321 25.6% $56,923
If Put is Exercised $45,321 25.6% $33,719
</TABLE>
(1) As SUMA's current LTM EPS multiple is negative, this example uses an
industry LTM EPS multiple composed of Tom Erickson's research universe
as of 12/29/97. Of course, when the option is exercised, the SUMA LTM
EPS multiple that exists at such time would be used. LTM EPS multiple
is equal to the Company's stock price on the date the option is
exercised divided by the Company's LTM earnings per share.
16
<PAGE> 59
LLC Valuation Matrix
Positive Earnings for SUMA and LLC
This matrix illustrates the potential effect the LTM LLC revenue and the LTM LLC
earnings has on the valuation of the LLC assuming SUMA's LTM earnings multiple
remains constant at 30.9x.
Last Twelve Months LLC Revenue
<TABLE>
<CAPTION>
10,000 20,000 30,000 40,000 50,000
<S> <C> <C> <C> <C> <C> <C>
LTM 1,000 $ 16,898 $ 20,818 $ 24,738 $ 28,658 $ 32,578
LLC 2,500 $ 36,365 $ 40,285 $ 44,205 $ 48,125 $ 52,045
Earnings 5,000 $ 68,810 $ 72,730 $ 76,650 $ 80,570 $ 84,490
7,500 $101,255 $105,175 $109,095 $113,015 $116,935
</TABLE>
17
<PAGE> 60
<TABLE>
<CAPTION>
Quarter in Which Discount Premium
Option is Exercised to Put to Call
- ----------------------------------------------------
<S> <C> <C>
Sep-99 30.0% 21.9%
- ----------------------------------------------------
Dec-99 29.2% 22.5%
- ----------------------------------------------------
Mar-00 28.5% 23.1%
- ----------------------------------------------------
Jun-00 27.7% 23.7%
- ----------------------------------------------------
Sep-00 27.0% 24.3%
- ----------------------------------------------------
Dec-00 26.3% 24.9%
- ----------------------------------------------------
Mar-01 25.6% 25.6%
- ----------------------------------------------------
Jun-01 24.9% 26.3%
- ----------------------------------------------------
Sep-01 24.3% 27.0%
- ----------------------------------------------------
Dec-01 23.7% 27.7%
- ----------------------------------------------------
Mar-02 23.1% 28.5%
- ----------------------------------------------------
Jun-02 22.5% 29.2%
- ----------------------------------------------------
Sep-02 21.9% 30.0%
- ----------------------------------------------------
</TABLE>
(1) Wessels, Arnold & Henderson recommends that the put or call only be
exercisable within ten business days after the public release of the
quarterly financials.
18
<PAGE> 61
STANDARDS RELATING TO DILUTION DISCOUNT
- --------------------------------------------------------------------------------
- - Goodwill effect
- Remaining goodwill which is not written off as acquired
research and development
- Less taxable discount for remaining goodwill written off over
statutory period
- - Additional shares issued by Summa Four
- - Adjustments for positive/negative impact on Summa Four's earnings
- --------------------------------------------------------------------------------
19
<PAGE> 62
SUMMA FOUR/JUNCTION
TOTAL VALUATION
================================================================================
20
<PAGE> 63
SUMMA FOUR/JUNCTION TOTAL VALUATION(1)
================================================================================
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
REVENUE AND EARNINGS BASED FORMULA
- --------------------------------------------------------------------------------
DATE WHEN TYPE OF SUMMA FOUR JUNCTION TOTAL LLC
OPTION IS EXERCISED EXERCISE SHAREHOLDERS SHAREHOLDERS VALUATION
- --------------------- ---------- -------------- -------------- -----------
<S> <C> <C> <C> <C>
March 2000 Call $18,044 $6,015 $24,059
- --------------------------------------------------------------------------------
March 2000 Put $10,481 $3,494 $13,974
- --------------------------------------------------------------------------------
March 2001 Call $42,692 $14,231 $56,923
- --------------------------------------------------------------------------------
March 2001 Put $25,289 $8,430 $33,719
- --------------------------------------------------------------------------------
March 2002 N/A $74,466 $24,822 $99,288
- --------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
REVENUE-BASED FORMULA
- --------------------------------------------------------------------------------
DATE WHEN TYPE OF SUMMA FOUR JUNCTION TOTAL LLC
OPTION IS EXERCISED EXERCISE SHAREHOLDERS SHAREHOLDERS VALUATION
- --------------------- ---------- -------------- -------------- -----------
<S> <C> <C> <C> <C>
March 2000 Call $9,949 $ 3,316 $13,265
- --------------------------------------------------------------------------------
March 2000 Put $5,779 $1,926 $ 7,705
- --------------------------------------------------------------------------------
March 2001 Call $19,936 $ 6,645 $26,581
- --------------------------------------------------------------------------------
March 2001 Put $11,809 $ 3,936 $15,745
- --------------------------------------------------------------------------------
March 2002 N/A $29,771 $ 9,924 $39,695
- --------------------------------------------------------------------------------
</TABLE>
(1) Derived from projected income statements provided by Summa Four and
Junction.
(2) Based on projections provided by Summa Four and Junction, the Revenue-Based
Formula would not be applicable
21
<PAGE> 64
PROJECTED INCOME STATEMENTS
================================================================================
22
<PAGE> 65
SUMMA FOUR PROJECTED INCOME STATEMENT
================================================================================
<TABLE>
<CAPTION>
ACTUAL PROJECTED
FISCAL YEARS ENDING MARCH 31.
1997 1998 1999 2000 2001 2002
------- -------- ------- ------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Revenue 44,316 42,393 50,870 70,114 100,000 145,000
Cost of sales 18,147 19,631 21,437 29,360 44,024 65,276
------- -------- ------- ------- -------- --------
Gross Profits 26,169 22,761 29,433 40,754 55,976 79,724
General and Administrative 5,068 5,634 4,833 5,609 7,000 8,700
Sales and Marketing 9,125 10,200 10,674 13,322 18,000 24,650
Research and Development 10,479 12,109 13,727 15,706 17,193 20,522
------- -------- ------- ------- -------- --------
Total operating expenses 24,672 27,943 29,234 34,637 42,193 53,872
Operating profit 1,497 (5,182) 199 6,118 13,783 25,852
Interest and other income 1,220 1,368 1,200 1,200 1,200 1,200
------- -------- ------- ------- -------- --------
Income before taxes 2,717 (3,814) 1,399 7,318 14,983 27,052
Normalized income taxes 869 (1,220) 448 2,342 4,795 8,657
------- -------- ------- ------- -------- --------
Net income $ 1,848 ($ 2,594) $ 952 $ 4,976 $ 10,189 $ 18,396
------- -------- ------- ------- -------- --------
Weighted average shares 6,121 5,772 5,900 6,100 6,300 6,500
EPS $ 0.30 ($ 0.45) $ 0.16 $ 0.82 $ 1.62 $ 2.83
As a % of revenue
- -----------------
Sequential revenue growth N/A -4.3% 20.0% 37.8% 42.6% 45.0%
Gross Margin 59.1% 53.7% 57.9% 58.1% 56.0% 55.0%
General & Administrative 11.4% 13.3% 9.5% 8.0% 7.0% 6.0%
Sales and marketing 20.6% 24.1% 21.0% 19.0% 18.0% 17.0%
Research and development 23.6% 28.6% 27.0% 22.4% 17.2% 14.2%
Operating margin 3.4% -12.2% 0.4% 8.7% 13.8% 17.8%
Net margin 4.2% -6.1% 1.9% 7.1% 10.2% 12.7%
Normalized tax rate 32.0% 32.0% 32.0% 32.0% 32.0% 32.0%
</TABLE>
- ---------------
(1) Projections provided by management of Summa Four and Junction. Results
could vary substantially from those provided by Summa Four and Junction
management.
23
<PAGE> 66
LLC PROJECTED INCOME STATEMENT
================================================================================
<TABLE>
<CAPTION>
PROJECTED
FISCAL YEARS ENDING MARCH 31,
1998 1999 2000 2001 2002
------- ------ ------- ------- --------
<S> <C> <C> <C> <C> <C>
SUMA/LLC equipment revenue $ 0 $8.675 $30,131 $59,176 $110,995
% attributable to LLC 39.0% 39.0% 39.0% 39.0% 39.0%
------- ------ ------- ------- --------
LLC revenue $ 0 $3.383 $11,751 $23,079 $ 43,288
Cost of sales -- 1,133 4,254 9,231 17,878
------- ------ ------- ------- --------
Gross profit 0 2,250 7,497 13,847 25,410
General & administrative -- 321 940 1,616 2,597
Sales and marketing -- 710 2,233 4,154 7,359
Research and development -- 913 2,632 3,968 6,127
------- ------ ------- ------- --------
Total operating expenses 0 1,944 5,805 9,738 16,083
Operating profit 0 306 1,692 4,110 9,327
Interest and other income -- 0 0 0 0
------- ------ ------- ------- --------
Income before taxes 0 306 1,692 4,110 9,327
Normalized income taxes -- 98 541 1,315 2,985
------- ------ ------- ------- --------
Net income $ 0 $ 208 $ 1,151 $ 2,795 $ 6,343
------- ------ ------- ------- --------
As a % of revenue
- -----------------
Sequential revenue growth N/A N/A 247.3% 96.4% 87.6%
Gross Margin 0.0% 66.5% 63.8% 60.0% 58.7%
General & Administrative 13.3% 9.5% 8.0% 7.0% 6.0%
Sales and marketing 24.1% 21.0% 19.0% 18.0% 17.0%
Research and development 28.6% 27.0% 22.4% 17.2% 14.2%
Operating margin 0.0% 9.0% 14.4% 17.8% 21.5%
Net margin 0.0% 6.1% 9.8% 12.1% 14.7%
Normalized tax rate 32.0% 32.0% 32.0% 32.0% 32.0%
</TABLE>
- ----------------
(1) Projections provided by management of Summa Four and Junction. Results
could vary substantially from those provided by Summa Four and Junction
management.
24
<PAGE> 67
COMPARABLE TECHNOLOGY
MERGER AND ACQUISITIONS
TRANSACTIONS
================================================================================
25
<PAGE> 68
COMPARABLE TECHNOLOGY MERGER AND
ACQUISITION TRANSACTIONS
================================================================================
<TABLE>
<CAPTION>
DATE TARGET
ANNOUNCED TARGET NAME SYMBOL ACQUIROR NAME DEAL VALUE
- ----------- ---------------------------------- -------- ------------------------------ ------------
($MMs)
<S> <C> <C> <C> <C>
01/19/95 ConferTech International CFER ALC Communications Group $66.0
01/27/95 Easel Corp. EASL VMARK Software Inc. 25.3
03/07/95 Future Now Inc. FNOW Intelligent Electronics Inc. 40.4
03/27/95 Micrographic Technology Corp. MTCO SoftNet Systems Inc. 13.8
04/21/95 Altai Inc. ALTI PLATINUM Technology Inc. 21.4
05/08/95 Data Switch Corp. DASW General Signal Corp. 72.8
05/30/95 Saber Software Inc. SABR McAfee Associates Inc. 42.2
09/15/95 Data Management Corp. DMCB Measurex Corp. 32.2
10/12/95 Rexon Inc. REXN Legacy Storage Sys Int'l Inc. 20.0
10/23/95 Griffin Technology Inc. GRIF Diebold Inc. 18.0
01/09/96 Techanalysis Corp. TECN CompuWare Corp. 32.6
01/17/96 Firefox Communications Inc. FFOX FTP Software Inc. 49.5
01/24/96 TGV Software Inc. TGVI Cisco Systems Inc. 92.4
04/16/96 CIS Technologies Inc. CISI National Data Corp. 99.3
05/13/96 Open Environment Corp. OPEN Borland International Inc. 41.8
06/11/96 Computer Identics Corp. CIDN Robotic Vision Systems Inc. 42.0
06/18/96 Builders Warehouse Assn Inc. BWAI Osicom Technologies Inc. 69.3
06/20/96 Alternate Circuit Technology -- Zycon Corp. 14.1
07/01/96 Interpoint Corp. INTP Crane Co. 52.8
</TABLE>
26
<PAGE> 69
COMPARABLE TECHNOLOGY MERGER AND
AQUISITION TRANSACTIONS (CONT.)
================================================================================
<TABLE>
<CAPTION>
DATE TARGET
ANNOUNCED TARGET NAME SYMBOL ACQUIROR NAME DEAL VALUE
- ----------- ---------------------------------- -------- ------------------------------ ------------
($MMs)
<S> <C> <C> <C> <C>
09/20/96 Comptronix Corp. CMPX Sanmina Corp. 22.0
09/24/96 Datalogix International DLGX Oracle Corp. 80.0
09/26/96 Fibronics International Inc. FBRX MRV Communications Inc. 22.8
10/02/96 Software Publishing Corp. SPCO Allegro New Media 25.2
10/03/96 High Level Design Systems Inc. HLD Cadence Design Systems Inc. 94.1
10/10/96 Knogo North America Inc. -- Video Sentry Corp. 48.8
12/10/96 Softdesk Inc. SDSK Autodesk Inc. 91.7
12/24/96 New Image Industries Inc. NIIS DENTSPLY International Inc. 11.4
01/07/97 Compression Labs Inc. CLIX VTEL Corp. 74.3
03/21/97 CrossComm Corp. XCOM Olicom A/S 84.6
06/10/97 NetFrame Systems Inc. NETF Micron Electronics Inc. 44.0
07/31/97 Interactive Group Inc. INTI Data Works Corp. 55.0
08/07/97 Magnetic Technologies Corp. MTCC SPS Technologies Inc. 16.8
08/14/97 Technology Service Group Inc. TSGI Elcotel 32.9
11/25/97 Life Concepts, Inc. LFCP Sun Holding Corp. 20.4
</TABLE>
27
<PAGE> 70
COMPARABLE TECHNOLOGY MERGER AND
ACQUISITION TRANSACTIONS (CONT.)
================================================================================
<TABLE>
<CAPTION>
--------------------------------------
TARGET LTM FINANCIALS
--------------------------------------
DATE DEAL OPER. NET
ANNE'D TARGET NAME ACQUIROR NAME VALUE SALES INCOME INCOME
- --------- ----------------------- ------------------------------ ------- ------- -------- --------
($MMs) ($MMs) ($MMs) ($MMs)
<S> <C> <C> <C> <C> <C> <C>
01/19/95 ConferTech ALC Communications Corp. $66.0 $41.1 $6.0 $1.7
International
01/27/95 Easel Corp VMARK Software Inc $25.3 $20.3 ($4.0) ($5.2)
03/07/95 Future Now Inc Intelligent Electronics Inc $40.4 $817.3 ($28.6) ($41.1)
03/27/95 Micrographic SoftNet Systems Inc $13.8 $16.9 $0.2 $0.2
Technology Corp
04/21/95 Altai Inc PLATINUM Technology Inc $21.4 $16.7 $2.1 $0.7
05/08/95 Data Switch Corp General Signal Corp $72.8 $86.1 $14.7 $7.1
05/30/95 Saber Software Inc McAfee Associates Inc $42.2 $21.1 - $1.3
09/15/95 Data Measurement Measurex Corp $32.2 $27.8 $2.7 $1.4
Corp
10/12/95 Rexon Inc Legacy Storage Sys Intl Inc $20.0 $195.7 ($16.0) ($20.8)
10/23/95 Griffin Technology Inc Diebold Inc $18.0 $17.9 $3.5 $0.2
01/09/96 Technalysis Corp CompuWare Corp $32.6 $18.2 - $0.7
01/17/96 Firefox FTP Software Inc $49.5 $20.1 $3.0 $1.8
Communications Inc.
01/24/96 TGV Software Inc Cisco Systems Inc $92.4 $24.3 $4.0 $2.9
04/16/96 CIS Technologies Inc National Data Corp $99.3 $43.2 $8.6 $2.7
05/13/96 Open Environment Borland International Inc $41.8 $27.4 ($3.0) ($4.2)
Corp
</TABLE>
<TABLE>
<CAPTION>
-----------------------------------
DEAL VALUE AS A MULTIPLE OF
LTM
-----------------------------------
DATE OPER. NET
ANNE'D TARGET NAME ACQUIROR NAME SALES INCOME INCOME
- --------- ----------------------- ------------------------------ ------- -------- --------
<S> <C> <C> <C> <C> <C>
01/19/95 ConferTech ALC Communications Corp. 1.6 x 11.0 x 38.8 x
International
01/27/95 Easel Corp VMARK Software Inc 1.2 x NM NM
03/07/95 Future Now Inc Intelligent Electronics Inc 0.0 x NM NM
03/27/95 Micrographic SoftNet Systems Inc 0.8 x 69.0 x 69.0 x
Technology Corp
04/21/95 Altai Inc PLATINUM Technology Inc 1.3 x 10.2 x 30.6 x
05/08/95 Data Switch Corp General Signal Corp 0.8 x 5.0 x 10.3 x
05/30/95 Saber Software Inc McAfee Associates Inc 2.0x NA 32.5 x
09/15/95 Data Measurement Measurex Corp 1.2 x 11.9 x 23.0 x
Corp
10/12/95 Rexon Inc Legacy Storage Sys Intl Inc 0.1 x NM NM
10/23/95 Griffin Technology Inc Diebold Inc 1.0 x 5.1 x 90.0 x
01/09/96 Technalysis Corp CompuWare Corp 1.8 x NA 46.6 x
01/17/96 Firefox FTP Software Inc 2.5 x 16.5 x 27.5 x
Communications Inc.
01/24/96 TGV Software Inc Cisco Systems Inc 3.8 x 23.1 x 31.9 x
04/16/96 CIS Technologies Inc National Data Corp 2.3 x 11.5 x 36.8 x
05/13/96 Open Environment Borland International Inc 1.5 x NM NM
Corp
</TABLE>
28
<PAGE> 71
COMPARABLE TECHNOLOGY MERGER AND
ACQUISITION TRANSACTIONS (CONT.)
================================================================================
<TABLE>
<CAPTION>
--------------------------------------
TARGET LTM FINANCIALS
--------------------------------------
DATE DEAL OPER. NET
ANNE'D TARGET NAME ACQUIROR NAME VALUE SALES INCOME INCOME
- --------- ----------------------- ------------------------------ ------- ------- -------- --------
($MMs) ($MMs) ($MMs) ($MMs)
<S> <C> <C> <C> <C> <C> <C>
06/11/96 Computer Identics Corp Robotic Vision Systems Inc $42.0 $28.2 $1.1 $0.5
06/18/96 Builders Warehouse Osicom Technologies Inc $69.3 $16.4 ($2.3) ($2.5)
Assn Inc.
06/20/96 Alternate Circuit Zycon Corp $14.1 - - -
Technology
07/01/96 Interpoint Corp Crane Co $52.8 $96.9 $11.1 $5.6
09/20/96 Comptronix Corp Sanmina Corp $22.0 $160.9 $2.0 ($12.9)
09/24/96 Datalogix International Oracle Corp $80.0 $49.2 ($7.0) ($8.0)
09/26/96 Fibronics International MRV Communications Inc $22.8 $47.6 ($1.9) ($6.2)
Inc
10/02/96 Software Publishing Allegro New Media $25.2 $17.5 ($19.8) $19.1)
Corp
10/03/96 High Level Design Cadence Design Systems Inc $94.1 - - -
Systems Inc
10/10/96 Knogo North America Video Sentry Corp $48.8 $26.9 $5.0 $3.1
Inc
12/10/96 Softdesk Inc Autodesk Inc $91.7 $38.0 $2.8 $1.4
12/24/96 New Image Industries DENTSPLY International $11.4 $36.0 ($8.8) ($10.3)
Inc Inc
01/07/97 Compression Labs Inc VTEL Corp $74.3 $92.4 ($10.5) ($25.0)
03/21/97 CrossComm Corp Olicom A/S $84.6 $42.8 ($12.4) ($14.8)
06/10/97 NetFrame Systems Inc Micron Electronics Inc $14.0 $67.9 ($28.5) ($36.3)
07/31/97 Interactive Group Inc DataWorks Corp $55.0 $57.0 $2.8 $0.7
08/07/97 Magnetic Technologies SPS Technologies Inc $16.8 $20.8 $1.5 $0.7
Corp
08/14/97 Technology Service Elcotel $32.9 $27.6 $2.1 $0.5
Group Inc
</TABLE>
<TABLE>
<CAPTION>
-----------------------------------
DEAL VALUE AS A MULTIPLE OF
LTM
-----------------------------------
DATE OPER. NET
ANNE'D TARGET NAME ACQUIROR NAME SALES INCOME INCOME
- --------- ----------------------- ------------------------------ ------- -------- --------
<S> <C> <C> <C> <C> <C>
06/11/96 Computer Identics Corp Robotic Vision Systems Inc 1.5 x 38.2 x 84.0 x
06/18/96 Builders Warehouse Osicom Technologies Inc 4.2 x NM NM
Assn Inc.
06/20/96 Alternate Circuit Zycon Corp NA NA NA
Technology
07/01/96 Interpoint Corp Crane Co 0.5 x 4.8 x 9.4 x
09/20/96 Comptronix Corp Sanmina Corp 0.1 x 11.0 x NM
09/24/96 Datalogix International Oracle Corp 1.6 x NM NM
09/26/96 Fibronics International MRV Communications Inc 0.5 x NM NM
Inc
10/02/96 Software Publishing Allegro New Media 1.4 x NM NM
Corp
10/03/96 High Level Design Cadence Design Systems Inc NA NA NA
Systems Inc
10/10/96 Knogo North America Video Sentry Corp 1.8 x 9.8 x 15.7 x
Inc
12/10/96 Softdesk Inc Autodesk Inc 2.4 x 32.8 x 65.5 x
12/24/96 New Image Industries DENTSPLY International 0.3 x NM NM
Inc Inc
01/07/97 Compression Labs Inc VTEL Corp 0.8 x NM NM
03/21/97 CrossComm Corp Olicom A/S 2.0 x NM NM
06/10/97 NetFrame Systems Inc Micron Electronics Inc 0.2 x NM NM
07/31/97 Interactive Group Inc DataWorks Corp 1.0 x 19.6 x 78.6 x
08/07/97 Magnetic Technologies SPS Technologies Inc 0.8 x 11.2 x 24.0 x
Corp
08/14/97 Technology Service Elcotel 1.2 x 15.7 x 65.8 x
Group Inc
</TABLE>
29
<PAGE> 72
COMPARABLE TECHNOLOGY MERGER AND
ACQUISITION TRANSACTIONS (CONT.)
================================================================================
<TABLE>
<CAPTION>
---------------------------
------------------------- DEAL VALUE AS A MULTIPLE OF
TARGET LTM FINANCIALS LTM
------------------------- ---------------------------
DATE DEAL OPER. NET OPER. NET
ANNE'D TARGET NAME ACQUIROR NAME VALUE SALES INCOME INCOME SALES INCOME INCOME
- --------- ----------------- ----------------- ----- ----- ------ ------ ------- ------ -------
($MMs) ($MMs) ($MMs) ($MMs)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
11/25/97 Life Concepts Inc Sun Holding Corp $20.4 - - - NA NA NA
-------------------------------------
MEAN 1.4 x 18.0 x 43.3 x
MEDIAN 1.2 x 11.5 x 34.6 x
-------------------------------------
</TABLE>
30
<PAGE> 73
COMPARABLE TECHNOLOGY MERGER AND
ACQUISITION TRANSACTIONS (CONT.)
================================================================================
<TABLE>
<CAPTION>
PRICE 1 WEEK
DATE DEAL PER PRIOR TO
ANNE'D TARGET NAME ACQUIROR NAME VALUE SHARE ANNE'MT
- -------- ----------------------- ------------------------------ ------- ------- ----------
($MMs)
<S> <C> <C> <C> <C> <C>
01/19/95 ConferTech ALC Communications Corp. $66 $8.00 $6.25
International
01/27/95 Easel Corp VMARK Software Inc $25 $3.89 $4.00
03/07/95 Future Now Inc Intelligent Electronics Inc $40 $6.77 $6.00
03/27/95 Micrographic SoftNet Systems Inc $14 NA NA
Technology Corp
04/21/95 Altai Inc PLATINUM Technology Inc $21 $8.50 $7.00
05/08/95 Data Switch Corp General Signal Corp $73 $4.71 $3.69
05/30/95 Saber Software Inc McAfee Associates Inc $42 $9.09 $6.63
09/15/95 Data Measurement Measurex Corp $32 $18.63 $15.75
Corp
10/12/95 Rexon Inc Legacy Storage Sys Intl Inc $20 NA $0.50
10/23/95 Griffin Technology Inc Diebold Inc $18 $7.75 $7.75
01/09/96 Technalysis Corp CompuWare Corp $33 $14.00 $12.00
01/17/96 Firefox FTP Software Inc $50 $7.28 $9.38
Communications Inc.
01/24/96 TGV Software Inc Cisco Systems Inc $92 $15.57 $9.13
04/16/96 CIS Technologies Inc National Data Corp $99 $3.01 $2.31
05/13/96 Open Environment Borland International Inc $42 $5.07 $6.00
Corp
06/11/96 Computer Identics Corp Robotic Vision Systems Inc $42 $3.67 $2.38
</TABLE>
<TABLE>
<CAPTION>
-----------------------
PREMIUM TO PRICE PER
1 MONTH SHARE(@)
DATE PRIOR TO -----------------------
ANNE'D TARGET NAME ACQUIROR NAME ANNE'MT 1 WEEK 1 MONTH
- -------- ----------------------- ------------------------------ ---------- -------- ---------
<S> <C> <C> <C> <C> <C>
01/19/95 ConferTech ALC Communications Corp. $4.31 28.0% 85.5%
International
01/27/95 Easel Corp VMARK Software Inc $3.13 (2.8%) 24.5%
03/07/95 Future Now Inc Intelligent Electronics Inc $5.38 12.8% 26.0%
03/27/95 Micrographic SoftNet Systems Inc NA NA NA
Technology Corp
04/21/95 Altai Inc PLATINUM Technology Inc $6.25 21.4% 36.0%
05/08/95 Data Switch Corp General Signal Corp $3.00 27.7% 57.0%
05/30/95 Saber Software Inc McAfee Associates Inc $6.75 37.2% 34.7%
09/15/95 Data Measurement Measurex Corp $16.75 18.3% 11.2%x
Corp
10/12/95 Rexon Inc Legacy Storage Sys Intl Inc $0.56 NA NA
10/23/95 Griffin Technology Inc Diebold Inc $8.25 0.0% (6.1%)
01/09/96 Technalysis Corp CompuWare Corp $12.00 16.7% 16.7%
01/17/96 Firefox FTP Software Inc $24.00 (22.3%) (69.7%)
Communications Inc.
01/24/96 TGV Software Inc Cisco Systems Inc $9.00 70.6% 73.0%
04/16/96 CIS Technologies Inc National Data Corp $2.31 30.2% 30.2%
05/13/96 Open Environment Borland International Inc $5.13 (15.5%) (1.1%)
Corp
06/11/96 Computer Identics Corp Robotic Vision Systems Inc $2.38 54.5% 54.5%
</TABLE>
31
<PAGE> 74
COMPARABLE TECHNOLOGY MERGER AND
ACQUISITION TRANSACTIONS (CONT.)
================================================================================
<TABLE>
<CAPTION>
PRICE 1 WEEK
DATE DEAL PER PRIOR TO
ANNE'D TARGET NAME ACQUIROR NAME VALUE SHARE ANNE'MT
- -------- ----------------------- ------------------------------ ------- ------- ----------
($MMs)
<S> <C> <C> <C> <C> <C>
06/18/96 Builders Warehouse Osicom Technologies Inc $69 $16.45 $14.19
Assn Inc.
06/20/96 Alternate Circuit Zycon Corp $14 NA NA
Technology
07/01/96 Interpoint Corp Crane Co $53 $4.15 $27.75
09/20/96 Comptronix Corp Sanmina Corp $22 NA NA
09/24/96 Datalogix International Oracle Corp $80 $8.00 $5.63
09/26/96 Fibronics International MRV Communications Inc $23 NA NA
Inc
10/02/96 Software Publishing Allegro New Media $25 $2.01 $1.81
Corp
10/03/96 High Level Design Cadence Design Systems Inc $94 $8.11 NA
Systems Inc
10/10/96 Knogo North America Video Sentry Corp $49 $7.79 $6.88
Inc
12/10/96 Softdesk Inc Autodesk Inc $92 $14.80 $8.88
12/24/96 New Image Industries DENTSPLY International $11 $2.00 NA
Inc Inc
01/07/97 Compression Labs Inc VTEL Corp $74 $4.66 $3.81
03/21/97 CrossComm Corp Olicom A/S $85 $8.93 $5.25
06/10/97 NetFrame Systems Inc Micron Electronics Inc $14 $1.00 $1.19
07/31/97 Interactive Group Inc DataWorks Corp $55 $11.58 $8.00
08/07/97 Magnetic Technologies SPS Technologies Inc $17 $5.00 $4.00
Corp
08/14/97 Technology Service Elcotel $33 $6.56 $6.13
Group Inc
11/25/97 Life Concepts Inc Sun Holding Corp $20 NA NA
</TABLE>
<TABLE>
<CAPTION>
-----------------------
PREMIUM TO PRICE PER
1 MONTH SHARE(@)
DATE PRIOR TO -----------------------
ANNE'D TARGET NAME ACQUIROR NAME ANNE'MT 1 WEEK 1 MONTH
- -------- ----------------------- ------------------------------ ---------- -------- ---------
<S> <C> <C> <C> <C> <C>
06/18/96 Builders Warehouse Osicom Technologies Inc $12.16 15.9% 35.3%
Assn Inc.
06/20/96 Alternate Circuit Zycon Corp NA NA NA
Technology
07/01/96 Interpoint Corp Crane Co $30.25 (85.0%) (86.3%)
09/20/96 Comptronix Corp Sanmina Corp NA NA NA
09/24/96 Datalogix International Oracle Corp $5.13 42.2% 56.1%
09/26/96 Fibronics International MRV Communications Inc NA NA NA
Inc
10/02/96 Software Publishing Allegro New Media $1.25 10.9% 60.8%
Corp
10/03/96 High Level Design Cadence Design Systems Inc NA NA NA
Systems Inc
10/10/96 Knogo North America Video Sentry Corp $7.25 13.3% 7.4%
Inc
12/10/96 Softdesk Inc Autodesk Inc $6.00 66.8% 146.7%
12/24/96 New Image Industries DENTSPLY International $1.13 NA NA
Inc Inc
01/07/97 Compression Labs Inc VTEL Corp $4.27 22.2% 9.2%
03/21/97 CrossComm Corp Olicom A/S $5.25 70.1% 70.1%
06/10/97 NetFrame Systems Inc Micron Electronics Inc $1.25 (15.8%) (20.0%)
07/31/97 Interactive Group Inc DataWorks Corp $6.75 44.8% 71.6%x
08/07/97 Magnetic Technologies SPS Technologies Inc $3.75 25.0% 33.3%
Corp
08/14/97 Technology Service Elcotel $4.63 7.1% 41.8%
Group Inc
11/25/97 Life Concepts Inc Sun Holding Corp NA NA NA
</TABLE>
32
<PAGE> 75
COMPARABLE TECHNOLOGY MERGER AND
ACQUISITION TRANSACTIONS (CONT.)
================================================================================
<TABLE>
<CAPTION>
-----------------------
PREMIUM TO PRICE PER
SHARE(@)
-----------------------
1 WEEK 1 MONTH
-------- ---------
<S> <C> <C>
--------
MEAN 19.01% 30.71%
MEDIAN 19.86% 34.00%
------------------------------
</TABLE>
- --------------------------------------------------------------------------------
33
<PAGE> 76
COMPARABLE TECHNOLOGY MERGER AND
ACQUISITION TRANSACTIONS (CONT.)
================================================================================
<TABLE>
<CAPTION>
DATE
ANNE'D TARGET NAME ACQUIROR NAME TARGET BUSINESS DESCRIPTION
- -------- ---------------------------- ------------------------- ---------------------------------
<S> <C> <C> <C>
01/19/95 ConferTech International ALC Communications Mnfrteleconferencing systems
Corp
01/27/95 Easel Corp VMARK Software Inc Develop. whl software
03/07/95 Future Now Inc Intelligent Electronics Computer support services
Inc
03/27/95 Micrographic Technology SoftNet Systems Inc Dvlp. whl software
Corp
04/21/95 Altai Inc PLATINUM Computer support svcs. software
Technology Inc
05/08/95 Data Switch Corp General Signal Corp Data processing equip. systems
05/30/95 Saber Software Inc McAfee Associates Inc Dvlp software for LANs
09/15/95 Data Measurement Corp Measurex Corp Mnfr quality control instr
10/12/95 Rexon Inc Legacy Storage Sys Intl Mnfr computer tape drivers
Inc
10/23/95 Griffin Technology Inc Diebold Inc Mnfr, whl computers
01/09/96 Technalysis Corp CompuWare Corp Develop software
01/17/96 Firefox Communications Inc FTP Software Inc Develop software
01/24/96 TGV Software Inc Cisco Systems Inc Develop software
04/16/96 CIS Technologies Inc National Data Corp Manufacture computers
05/13/96 Open Environment Corp Borland International Pvd network design services
Inc
06/11/96 Computer Identics Corp Robotic Vision Systems Manufacture bar code scanners
Inc
06/18/96 Builders Warehouse Assn Inc Osicom Technologies Pvd LAN design services
Inc
</TABLE>
<TABLE>
<CAPTION>
DATE
ANNE'D TARGET NAME ACQUIROR NAME ACQUIROR BUSINESS DESCRIPTION
- -------- ---------------------------- ------------------------- ----------------------------------
<S> <C> <C> <C>
01/19/95 ConferTech International ALC Communications Pyd long distance commun svcs
Corp
01/27/95 Easel Corp VMARK Software Inc Develop applications software
03/07/95 Future Now Inc Intelligent Electronics Whl. ret computer systems
Inc
03/27/95 Micrographic Technology SoftNet Systems Inc Pvd accounting, auditing svcs
Corp
04/21/95 Altai Inc PLATINUM Develop integrated software
Technology Inc
05/08/95 Data Switch Corp General Signal Corp Mnfr electric control equip
05/30/95 Saber Software Inc McAfee Associates Inc Develop network software
09/15/95 Data Measurement Corp Measurex Corp Mnfr comptr process entrl sys
10/12/95 Rexon Inc Legacy Storage Sys Intl Mnfr data storage subsystems
Inc
10/23/95 Griffin Technology Inc Diebold Inc Mnfr ATMS, security equip
01/09/96 Technalysis Corp CompuWare Corp Dvlp. whl software systems
01/17/96 Firefox Communications Inc FTP Software Inc Dvlp. whl applications software
01/24/96 TGV Software Inc Cisco Systems Inc Mnfr inter-networking systems
04/16/96 CIS Technologies Inc National Data Corp Pvd info. transaction svcs
05/13/96 Open Environment Corp Borland International Develop software
Inc
06/11/96 Computer Identics Corp Robotic Vision Systems Mnfr 2-D, 3-D vision-based sys
Inc
06/18/96 Builders Warehouse Assn Inc Osicom Technologies Mnfr communications
Inc equipment
</TABLE>
34
<PAGE> 77
COMPARABLE TECHNOLOGY MERGER AND
ACQUISITION TRANSACTIONS (CONT.)
================================================================================
<TABLE>
<CAPTION>
DATE
ANNE'D TARGET NAME ACQUIROR NAME TARGET BUSINESS DESCRIPTION
- -------- ---------------------------- ------------------------- ---------------------------------
<S> <C> <C> <C>
06/20/96 Alternate Circuit Technology Zycon Corp Mnfr printed circuit boards
07/01/96 Interpoint Corp Crane Co Mnfr microelectrn circuits
09/20/96 Comptronix Corp Sanmina Corp Mnfr printed circuit boards
09/24/96 Datalogix International Oracle Corp Develop business software
09/26/96 Fibronics International Inc MRV Communications Mnfr modems
Inc
10/02/96 Software Publishing Corp Allegro New Media Develop software
10/03/96 High Level Design Systems Cadence Design Pvd computer programming svcs
Inc. Systems Inc
10/10/96 Knogo North America Inc Video Sentry Corp Mnfr search, navigation equip
12/10/96 Softdesk Inc Autodesk Inc Develop, wholesale CAD software
12/24/96 New Image Industries Inc DENTSPLY Dev computer imaging software
International Inc
01/07/97 Compression Labs Inc VTEL Corp Mnfr telecommunications equip
03/21/97 CrossComm Corp Olicom A/S Mnfr computer networking equip
06/10/97 NetFrame Systems Inc Micron Electronics Inc Manfacture electn computers
07/31/97 Interactive Group Inc DATAWorks Corp Dvlp, whl comp integrated sys
08/07/97 Magnetic Technologies Corp SPS Technologies Inc Manufacture copiers, printers
08/14/97 Technology Services Group Elcotel Mnfr cellular telephones
Inc
11/25/97 Life Concepts Inc Sun Holding Corp Mnfr satellites, CD's
</TABLE>
<TABLE>
<CAPTION>
DATE
ANNE'D TARGET NAME ACQUIROR NAME ACQUIROR BUSINESS DESCRIPTION
- -------- ---------------------------- ------------------------- ----------------------------------
<S> <C> <C> <C>
06/20/96 Alternate Circuit Technology Zycon Corp Mnfr printed circuit boards
07/01/96 Interpoint Corp Crane Co Mnfr indl valves, pumps, filters
09/20/96 Comptronix Corp Sanmina Corp Mnfr printed circuit boards
09/24/96 Datalogix International Oracle Corp Develop database software
09/26/96 Fibronics International Inc MRV Communications Manufacture semiconductors
Inc
10/02/96 Software Publishing Corp Allegro New Media Pvd software services
10/03/96 High Level Design Systems Cadence Design Develop CAD software
Inc. Systems Inc
10/10/96 Knogo North America Inc Video Sentry Corp Provide electrical services
12/10/96 Softdesk Inc Autodesk Inc Design drafting software
12/24/96 New Image Industries Inc DENTSPLY Mnfr dental, med X-ray equip
International Inc
01/07/97 Compression Labs Inc VTEL Corp Mnfr video telecommun equip
03/21/97 CrossComm Corp Olicom A/S Mnfr communications
equipment
06/10/97 NetFrame Systems Inc Micron Electronics Inc Mnfr electronic components
07/31/97 Interactive Group Inc DATAWorks Corp Dvlp computer integrated sys
08/07/97 Magnetic Technologies Corp SPS Technologies Inc Mnfr industrial fasteners
08/14/97 Technology Services Group Elcotel Mnfr public common products
Inc
11/25/97 Life Concepts Inc Sun Holding Corp Mnfr computer, common
equipment
</TABLE>
35
<PAGE> 78
SCHEDULE E-1
SUMA/LLC EQUIPMENT REVENUE
Revenue derived from the sale of a 6u form factor switch as defined by
the Product Definition (Schedule A to the Operating Agreement), and future
Product and project plans as unanimously agreed to by the Board of Members. The
6u form factor switch is defined as comprising system hardware (base systems and
system cards), and system software (operating system and call/media control
software), and associated support revenues for those items.
<PAGE> 79
EXHIBIT I TO OPERATING AGREEMENT
LLC DEVELOPMENT AGREEMENT
THIS LLC DEVELOPMENT AGREEMENT (this "Agreement") is made and entered
into as of April 3, 1998 (the "Effective Date") by and between SUMMA FOUR, INC.
("Summa Four"), a Delaware corporation with offices at 25 Sundial Avenue,
Manchester, New Hampshire 03103, Telecopy No. 603-695-1242, and SUMMATION LLC
("LLC" and together with Summa Four shall be referred to as the "Parties" to
this Agreement), a Delaware limited liability company with offices at 25 Sundial
Avenue, Manchester, New Hampshire 03103, Telecopy No. 603-695-1242.
WHEREAS, LLC was formed as of the date hereof pursuant to an Operating
Agreement executed by Summa Four and Junction, Inc. (the "Operating Agreement");
and
WHEREAS, Summa Four and the LLC desire the LLC to engage in certain
development activities, subject to the terms and conditions set forth below;
NOW, THEREFORE, in consideration of the mutual promises, terms and
conditions hereinafter set forth, and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the Parties do hereby
agree as follows:
1. DEVELOPMENT AND TESTING OBLIGATIONS.
1.1 During the term of this Agreement, LLC shall develop and test, or
arrange for the development and testing of, the Product (as defined in the
Operating Agreement) in accordance with the terms, conditions and milestones
described in the development plan attached as Exhibit A hereto (the "Development
Plan").
1.2 Summa Four agrees to grant from time to time during the term of
this Agreement one or more non-exclusive, non-transferable, royalty-free
licenses to LLC to make, have made, copy, modify, enhance and prepare derivative
works of that Summa Four technology which the Parties reasonably agree is
necessary for LLC to undertake and complete the work described in the
Development Plan (the "Licensed Summa Four Technology") solely at the facilities
of LLC or its subcontractors, for the sole purpose of undertaking and completing
the work described in the Development Plan. Exhibit B attached hereto shall
include a list of Licensed Summa Four Technology and shall be amended from time
to time as agreed upon by the Parties. LLC shall have no right to sublicense any
rights in the Licensed Summa Four Technology (including without limitation to
LLC's subcontractors) without the express prior written consent of Summa Four.
Summa Four shall provide the Licensed Summa Four Technology to LLC in a format
which the Parties reasonably agree is necessary for LLC to undertake and
complete the work described in the Development Plan. LLC shall notify Summa Four
immediately in the event of any actual or suspected unauthorized access to, use
of or tampering with the Licensed Summa Four
<PAGE> 80
Technology. LLC agrees that the Licensed Summa Four Technology shall constitute
Confidential Information of Summa Four, as defined in Section 7.1 below.
1.3 The Parties agree that LLC is expected to expend no more than
$689,000 (the "Budget") in connection with developing and testing the Product in
accordance with the Development Plan.
1.4 In the event that LLC's reasonable expenses incurred in connection
with its work on the Development Plan exceed the Cash Payments, then the Parties
shall in good faith explore other means for funding LLC's development and
testing work hereunder.
1.5 For the purposes of this Agreement, LLC's reasonable costs incurred
in connection with its work on the Development Plan shall mean LLC's cost of
engaging one or more third parties to undertake and complete such work.
1.6 LLC shall report to Summa Four within thirty (30) days after the
end of each calendar quarter as to its costs incurred in such quarter.
1.7 The Parties hereto acknowledge and agree that, as part of the
preparation of Summa Four's audited annual accounts, LLC's auditors, at Summa
Four's request, shall deliver to Summa Four a statement confirming the amount of
LLC's costs incurred in connection with its work on the Development Plan. LLC
will provide Summa Four's auditors with reasonable access to such books and
records of LLC as may be necessary to allow Summa Four's auditors to confirm
such expenses and to determine whether or not such expenses were reasonable. Any
disputes concerning the amount or reasonableness of such expenses shall be
resolved in accordance with the provisions of Section 8.3 below.
2. INTELLECTUAL PROPERTY RIGHTS DEVELOPED DURING TERM.
2.1 The Parties agree that all right, title and interest to any and all
intellectual property rights to inventions and discoveries made by LLC (either
by itself, or through its third party subcontractors, other than Summa Four)
pursuant to this Agreement shall be owned by LLC.
2.2 LLC agrees that it shall not subcontract any part of its work under
the Development Plan to a third party unless such third party confirms in
writing to both LLC and Summa Four that: (a) all right, title and interest to
any and all intellectual property rights to inventions and discoveries made by
such third party (either by itself or with LLC ) shall be assigned to LLC; and
(b) such third party agrees to do all reasonable acts and things and execute all
such documents and agreements as are reasonably requested by either LLC or Summa
Four to (i) confirm and vest the ownership right, title and interest in such
intellectual
-2-
<PAGE> 81
property rights with LLC and (ii) to protect the confidentiality of the Licensed
Summa Four Technology; the Licensed Rights, as defined in the Summa Four License
of Technology to Summation LLC between the Parties of even date hereof; the
Assigned Rights, as defined in the Assignment by Junction of Rights with Respect
to Product of even date hereof; and technology developed under this Agreement
and/or the Junction Subcontract of even date hereof between LLC and Junction,
Inc.
3. PROVISION OF INFORMATION AND COOPERATION. Beginning on the Effective
Date, upon the request of LLC, Summa Four will (without charge) provide or
otherwise make available to LLC or its subcontractors such records, personnel,
data and other information as LLC shall reasonably request or as otherwise may
be necessary or appropriate to allow LLC and its subcontractors to undertake and
complete the work described in the Development Plan. Upon the request of LLC,
Summa Four will (without charge) generally cooperate with LLC and its
subcontractors by providing access to Summa Four's facilities for the purpose of
LLC undertaking and completing the work described in the Development Plan.
4. INDEMNITIES.
4.1 Indemnification by LLC.
(a) LLC shall indemnify, defend and hold Summa Four harmless from
and against all losses, damages, settlements, costs and expenses (including
reasonable attorneys' fees) (collectively, "Damages") arising from any claim
that any product resulting from work performed under the Development Plan
infringes, violates or misappropriates any patent, copyright, trademark, trade
secret, mask work or other intellectual or industrial property right of any
third party.
(b) Summa Four shall notify LLC promptly in writing of any third
party action (and provide information regarding all prior related claims)
brought against Summa Four based on a claim described in Section 4.1(a) above.
LLC shall defend such action at its expense and pay all Damages attributable to
such claim incurred by Summa Four (as they are incurred). LLC shall have sole
control of the defense of any such action and all negotiations for its
settlement or compromise. Summa Four shall reasonably cooperate with LLC in the
defense of such claim, and may be represented, at Summa Four's expense, by
counsel of Summa Four's selection.
(c) In the event that a permanent injunction based solely on a
claim indemnified by LLC under Section 4.1(a) above is obtained against the
Parties' development, use or distribution of the Product developed pursuant to
the Development Plan, then Summa Four shall have the right to terminate this
Agreement in accordance with Section 5.2 below.
(d) The provisions of Section 4.1(a) notwithstanding, LLC shall
not have any liability to Summa Four to the extent that any claim of
infringement is based upon the Licensed Summa Four Technology.
-3-
<PAGE> 82
4.2 Indemnification by Summa Four.
(a) Summa Four shall indemnify, defend and hold LLC harmless from
and against any Damages arising from any claim that the Licensed Summa Four
Technology infringes violates, or misappropriates any patent, copyright,
trademark, trade secret, mask work or other intellectual or industrial property
right of any third party.
(b) LLC shall notify Summa Four promptly in writing of any third
party action (and provide information regarding all prior related claims)
brought against LLC based on a claim described in Section 4.2(a) above. Summa
Four shall defend such action at its expense and pay all Damages attributable to
such claim incurred by LLC (as they are incurred). Summa Four shall have sole
control of the defense of any such action and all negotiations for its
settlement or compromise. LLC shall reasonably cooperate with Summa Four in the
defense of such claim, and may be represented, at LLC's expense, by counsel of
LLC's selection.
(c) The provisions of Section 4.2(a) notwithstanding, Summa Four
shall not have any liability to LLC to the extent that any claim of infringement
is based upon use of the Licensed Summa Four Technology for any purpose
unrelated to LLC's undertaking and completing work pursuant to the Development
Plan or from any modification of the Licensed Summa Four Technology or
combination of the Licensed Summa Four Technology with technology not supplied
by Summa Four.
5. TERM.
5.1 The term of this Agreement shall commence on the Effective Date and
shall, unless terminated pursuant to this Article 5, continue until the date on
which Summa Four confirms in writing that LLC has completed performance of its
obligations under this Agreement.
5.2 In the event of breach of any provision of this Agreement, the
breaching party shall have thirty (30) days after written notice thereof by the
non-breaching party within which to cure such breach. In the event such breach
has not been cured within such period of time, the non-breaching party may on
notice to the breaching party terminate this Agreement. Termination of this
Agreement for any reason shall not extinguish the unpaid obligations of Summa
Four that accrued prior to the effective date of termination.
6. PRIOR SERVICES BY LLC. LLC hereby acknowledges and agrees that no
services have been rendered by LLC to Summa Four prior to the Effective Date for
which LLC is entitled to seek reimbursement.
-4-
<PAGE> 83
7. CONFIDENTIALITY.
7.1 LLC agrees that Summa Four has a proprietary interest in Summa
Four's confidential information or data (hereinafter "Confidential
Information"). LLC acknowledges and agrees that in the course of its performance
of this Agreement the Confidential Information may be made known or made
available to LLC. During and after the term of this Agreement, all disclosures
to LLC, its agents and employees shall be held in strict confidence by LLC,
which shall disclose the Confidential Information only to those of its
subcontractors to whom it is necessary in order to properly carry out their
duties as limited by the terms and conditions hereof. During and after the term
of this Agreement, LLC shall not use the Confidential Information except for the
purposes of exercising its rights and carrying out its duties hereunder.
7.2 Notwithstanding anything contained in this Agreement to the
contrary, LLC shall not be liable for a disclosure of Confidential Information
if the information so disclosed:
(a) was in the public domain at the time it was disclosed by Summa
Four to LLC; or
(b) becomes known to LLC from a source other than Summa Four
without breach of such source's confidentiality obligations to Summa Four and
can be so demonstrated; or
(c) was disclosed pursuant to court order or as otherwise
compelled by law.
7.3 Upon termination or expiration of this Agreement, as the case may
be, LLC shall, at the request of Summa Four, either promptly return to Summa
Four or dispose of all Confidential Information in any form whatsoever which it
may have in its possession, custody or control (whether direct or indirect).
8. MISCELLANEOUS.
8.1 This Agreement and any and all of the rights and obligations of
either Party hereunder shall not be assigned, delegated, sold, transferred or
otherwise disposed of, by operation of law or otherwise, without the prior
written consent of the other Party. This Agreement shall be binding upon, and
inure to the benefit of, LLC and Summa Four and their respective successors and
assigns, to the extent such assignments are in accordance with this Section 8.1.
8.2 This Agreement shall be governed, interpreted and construed in
accordance with the laws of the State of New Hampshire applicable to agreements
made and to be fully performed therein.
-5-
<PAGE> 84
8.3 Any dispute, controversy or claim arising out of or relating to
this Agreement, or to a breach thereof, including its interpretation,
performance or termination, shall be submitted to and finally resolved by
arbitration. The arbitration shall be conducted in accordance with the
commercial rules of the American Arbitration Association (AAA), which shall
administer the arbitration and act as appointing authority. The arbitration,
including the rendering of the award, shall take place in Manchester, New
Hampshire, and shall be the exclusive forum for resolving such dispute,
controversy or claim. The arbitration shall be conducted by three (3)
arbitrators, one (1) to be appointed by LLC, one (1) to be appointed by Summa
Four and the remaining arbitrator being nominated by the arbitrators so selected
or, if they cannot agree on the remaining arbitrator, by the President of the
AAA. The decision of the arbitrators shall be executory, final and binding upon
the Parties hereto, and the expense of the arbitration (including without
limitation the award of attorneys' fees to the prevailing Party) shall be paid
as the arbitrators determine. Judgment upon the award of the arbitration may be
entered in any court where the arbitration takes place or any court having
jurisdiction thereof, and application may be made to any court for a judicial
acceptance of the award or order of enforcement. Notwithstanding anything
contained in this Section 8.3 to the contrary, each Party shall have the right
to institute judicial proceedings against the other Party or anyone acting by,
through or under such other Party in order to enforce the instituting Party's
rights hereunder through reformation of contract, specific performance,
injunction or similar equitable relief.
8.4 A waiver of any breach of any provision of this Agreement shall not
be construed as a continuing waiver of other breaches of the same or other
provisions of this Agreement.
8.5 Nothing herein contained shall be deemed to create a joint venture,
employer-employee, agency or partnership relationship between the Parties
hereto. Neither Party shall have any power to enter into any contracts or
commitments in the name of, or on behalf of, the other Party, or to bind the
other Party in any respect whatsoever.
8.6 Each notice required or permitted to be sent under this Agreement
shall be given by telecopy transmission or by registered or recorded delivery
letter to LLC and to Summa Four at the their addresses and telecopy numbers set
forth above. Either Party may change its address and/or telecopy number for
purposes of this Agreement by giving the other party written notice of its new
address and/or telecopy number. Any properly addressed notice if given or made
by registered or recorded delivery letter shall be deemed to have been received
on the earlier of the date actually received and the date five (5) days after
the same was posted (and in proving such it shall be sufficient to prove that
the envelope containing the same was properly addressed and posted as aforesaid)
and if given or made by telecopy transmission shall be deemed to have been
received at the time of dispatch, unless such date of deemed receipt is not a
day on which banks are open for business in Manchester, New Hampshire, in which
case the date of deemed receipt shall be the next succeeding business day.
-6-
<PAGE> 85
8.7 This Agreement embodies the entire understanding between the
Parties relating to the subject matter hereof, whether written or oral, and
there are no prior representations, warranties or agreements between the Parties
not contained in this Agreement.
8.8 If any provision of this Agreement is declared invalid or
unenforceable by a court having competent jurisdiction, it is mutually agreed
that this Agreement shall endure except for the part declared invalid or
unenforceable by order of such court. The Parties shall consult and use their
best efforts to agree upon a valid and enforceable provision which shall be a
reasonable substitute for such invalid or unenforceable provision in light of
the intent of this Agreement.
8.9 Any amendment or modification of any provision of this Agreement
must be in writing, dated and signed by both Parties hereto.
8.10 Notwithstanding anything else in this Agreement to the contrary,
the parties agree that Section 1.7 and Articles 2, 4, 7 and 8 shall survive the
expiration of this Agreement to the extent required thereby for the full
observation and performance by any or all of the parties hereto.
8.11 Each of LLC and Summa Four covenants and agrees that all of its
activities under or pursuant to this Agreement shall comply with all applicable
laws, rules and regulations.
8.12 Any headings contained herein are for directory purposes only, do
not constitute a part of this Agreement, and shall not be employed in
interpreting this Agreement.
8.13 This Agreement may be executed in any number of counterparts and
each such counterpart shall be deemed to be an original.
-7-
<PAGE> 86
IN WITNESS WHEREOF, the Parties hereto have signed this Agreement.
SUMMA FOUR, INC.
By__________________________________
Name:
Title:
SUMMATION LLC.
By___________________________________
Name:
Title:
-8-
<PAGE> 87
EXHIBIT A
Development Plan
To be mutually agreed upon.
<PAGE> 88
EXHIBIT B
Licensed Summa Four Technology
To be determined by Summa Four.
<PAGE> 89
EXHIBIT II TO OPERATING AGREEMENT
JUNCTION SUBCONTRACT
THIS JUNCTION SUBCONTRACT (this "Subcontract") is made and entered into
as of April 3, 1998 (the "Effective Date") by and between SUMMATION LLC ("LLC"),
a Delaware limited liability company with offices at 25 Sundial Avenue,
Manchester, New Hampshire 03103, Telecopy No. 603-695-1242 and JUNCTION, INC.
("Junction" and together with LLC shall be referred to as the "Parties" to this
Subcontract), a Delaware corporation with offices at 21040 Homestead Avenue,
Suite 205, Cupertino, CA 95014, Telecopy No. 408-774-2135.
WHEREAS, LLC was formed as of the date hereof pursuant to an Operating
Agreement executed by Summa Four, Inc, ("Summa Four") and Junction (the
"Operating Agreement");
WHEREAS, LLC has entered into an LLC Development Agreement as of the
date hereof with Summa Four; and
WHEREAS, LLC desires to subcontract to Junction certain development
services which LLC has undertaken on behalf of Summa Four, and Junction is
willing to provide such services, subject to the terms and conditions set forth
below;
NOW, THEREFORE, in consideration of the mutual promises, terms and
conditions hereinafter set forth, and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the Parties do hereby
agree as follows:
1. DEVELOPMENT AND TESTING OBLIGATIONS.
1.1 During the term of this Subcontract, Junction shall develop and/or
test certain portions of the Product (as defined in the Operating Agreement) in
accordance with the terms, conditions and milestones described in the
development plan attached as Exhibit A hereto (the "Development Plan").
1.2 LLC hereby grants a non-exclusive, non-transferable, royalty-free
license to Junction during the term of this Subcontract to make, have made,
copy, modify, enhance and prepare derivative works of that Summa Four technology
described in Exhibit B hereto and related documentation (the "Sublicensed Summa
Four Technology") solely at the facilities of Junction or LLC, for the sole
purpose of undertaking and completing the work described in the Development
Plan. Junction shall have no right to sublicense any rights in the Sublicensed
Summa Four Technology (including without limitation to Junction's
subcontractors) without the express prior written consent of Summa Four. LLC
shall provide the Sublicensed Summa Four Technology to Junction in a format
which the Parties reasonably agree is necessary for Junction to undertake and
complete the work described in the
<PAGE> 90
Development Plan. Junction shall notify LLC and Summa Four immediately in the
event of any actual or suspected unauthorized access to, use of or tampering
with the Sublicensed Summa Four Technology. Junction agrees that the Sublicensed
Summa Four Technology shall constitute Confidential Information of Summa Four,
as defined in Section 7.1 below.
1.3 The Parties agree that Junction is expected to expend no more than
$689,000 ("the Budget") in connection with developing and testing the Product in
accordance with the Development Plan.
1.4 In the event that Junction's reasonable expenses incurred in
connection with its work on the Development Plan exceed the Cash Payments, then
the Parties shall in good faith explore other means for funding Junction's
development and testing work hereunder. Failing further agreement between the
Parties, Junction shall suspend further work under this Subcontract once its
reasonable expenses are equal to the Cash Payments.
1.5 For the purposes of this Subcontract, Junction's reasonable costs
incurred in connection with its work on the Development Plan shall mean
Junction's fully-allocated cost of providing development and testing services to
LLC hereunder, including: (i) out-of-pocket costs and a pro-rata portion of the
salary and benefits of the Junction employees providing such services; (ii) any
other direct expenditures related to the services (which are approved in writing
in advance by LLC), including without limitation the cost of materials consumed
in performing the services, the costs of leased equipment used in the services,
expenditures for services directly undertaken on Junction's behalf and any
payments to third parties in connection with the services. Notwithstanding
anything contained herein to the contrary, Junction's reasonable costs shall not
include any portion of Junction's overhead and general administrative expenses.
1.6 Junction shall report to LLC within thirty (30) days after the end
of each calendar quarter as to its costs incurred in such quarter.
1.7 The Parties hereto acknowledge and agree that, as part of the
preparation of LLC's audited annual accounts, Junction's auditors, at LLC's
request, shall deliver to LLC a statement confirming the amount of Junction's
costs incurred in connection with its work on the Development Plan. Junction
will provide LLC's auditors with reasonable access to such books and records of
Junction as may be necessary to allow LLC's auditors to confirm such expenses
and to determine whether or not such expenses were reasonable. Any disputes
concerning the amount or reasonableness of such expenses shall be resolved in
accordance with the provisions of Section 8.3 below.
-2-
<PAGE> 91
2. INTELLECTUAL PROPERTY RIGHTS DEVELOPED DURING TERM.
2.1 The Parties agree that all right, title and interest to any and all
intellectual property rights to inventions and discoveries made by Junction
(either by itself, or through its subcontractors, with LLC or with Summa Four)
pursuant to this Subcontract shall be owned by LLC and Junction agrees to assign
to the LLC all such rights, title and interest. Junction agrees to do all
reasonable acts and things and execute all such documents and agreements as are
reasonably necessary to confirm and vest the ownership right, title and interest
in such intellectual property rights with LLC.
2.2 Junction agrees that it shall not subcontract any part of its work
under the Development Plan to a third party unless such third party confirms in
writing to each of Junction, LLC and Summa Four that: (a) all right, title and
interest to any and all intellectual property rights to inventions and
discoveries made by such third party (either by itself, with Junction, with LLC
or with Summa Four) pursuant to such an agreement shall be assigned to LLC; and
(b) such third party agrees to do all reasonable acts and things and execute all
such documents and agreements as are reasonably requested by Junction, LLC or
Summa Four to (i) confirm and vest the ownership right, title and interest in
such intellectual property rights with LLC or Summa Four and (ii) to protect the
confidentiality of the Sublicensed Summa Four Technology; the Licensed Rights,
as defined in the Summa Four License of Technology to Summation LLC, of even
date hereof, between Summa Four and the LLC; the Assigned Rights, as defined in
the Assignment by Junction of Rights with Respect to Products, of even date
hereof, between the Parties; and technology developed under this Agreement
and/or the LLC Development Agreement between Summa Four and LLC.
3. PROVISION OF INFORMATION AND COOPERATION. Beginning on the Effective
Date, upon the request of Junction, LLC will (without charge) provide or
otherwise make available to Junction or its subcontractors such records,
personnel, data and other information as Junction shall reasonably request or as
otherwise may be necessary or appropriate to allow Junction and its
subcontractors to undertake and complete the work described in the Development
Plan. Upon the request of Junction, LLC will (without charge) generally
cooperate with Junction and its subcontractors by providing access to LLC's
facilities for the purpose of Junction undertaking and completing the work
described in the Development Plan.
4. INDEMNITIES.
4.1 Indemnification by Junction.
(a) Junction shall indemnify, defend and hold LLC harmless
from and against all losses, damages, settlements, costs and expenses (including
reasonable attorneys' fees) (collectively, "Damages") arising from any claim
that any product resulting from work performed under the Development Plan
infringes, violates or misappropriates any patent, copyright, trademark, trade
secret, mask work or other intellectual or industrial property right of any
third party.
-3-
<PAGE> 92
(b) LLC shall notify Junction promptly in writing of any third
party action (and provide information regarding all prior related claims)
brought against LLC based on a claim described in Section 4.1(a) above. Junction
shall defend such action at its expense and pay all Damages attributable to such
claim incurred by LLC (as they are incurred). Junction shall have sole control
of the defense of any such action and all negotiations for its settlement or
compromise. LLC shall reasonably cooperate with Junction in the defense of such
claim, and may be represented, at LLC's expense, by counsel of LLC's selection.
(c) In the event that a permanent injunction based solely on a
claim indemnified by Junction under Section 4.1(a) above is obtained against the
Parties' development, use or distribution of the Product developed pursuant to
the Development Plan, then LLC shall have the right to terminate this
Subcontract in accordance with Section 5.2 below.
(d) The provisions of Section 4.1(a) notwithstanding, Junction
shall not have any liability to LLC to the extent that any claim of infringement
is based upon the Sublicensed Summa Four Technology.
4.2 Indemnification by LLC.
(a) LLC shall indemnify, defend and hold Junction harmless from
and against any Damages arising from any claim that the Sublicensed Summa Four
Technology infringes violates, or misappropriates any patent, copyright,
trademark, trade secret, mask work or other intellectual or industrial property
right of any third party.
(b) Junction shall notify LLC promptly in writing of any third
party action (and provide information regarding all prior related claims)
brought against Junction based on a claim described in Section 4.2(a) above. LLC
shall defend such action at its expense and pay all Damages attributable to such
claim incurred by Junction (as they are incurred). LLC shall have sole control
of the defense of any such action and all negotiations for its settlement or
compromise. Junction shall reasonably cooperate with LLC in the defense of such
claim, and may be represented, at Junction's expense, by counsel of Junction's
selection.
(c) The provisions of Section 4.2(a) notwithstanding, LLC shall
not have any liability to Junction to the extent that any claim of infringement
is based upon use of the Sublicensed Summa Four Technology for any purpose
unrelated to Junction's undertaking and completing work pursuant to the
Development Plan.
5. TERM.
5.1 The term of this Subcontract shall commence on the Effective Date
and shall, unless terminated pursuant to this Article 5, continue until the date
on which Summa Four confirms in writing that LLC has completed performance of
its obligations under this Agreement.
-4-
<PAGE> 93
5.2 In the event of breach of any provision of this Subcontract, the
breaching party shall have thirty (30) days after written notice thereof by the
non-breaching party within which to cure such breach. In the event such breach
has not been cured within such period of time, the non-breaching party may on
notice to the breaching party terminate this Subcontract. Termination of this
Subcontract for any reason shall not extinguish the unpaid obligations of LLC
that accrued prior to the effective date of termination.
6. PRIOR SERVICES BY JUNCTION. Junction hereby acknowledges and agrees
that no services have been rendered by Junction to LLC or Summa Four prior to
the Effective Date for which Junction is entitled to seek reimbursement.
7. CONFIDENTIALITY; NON-COMPETITION COVENANT.
7.1 Junction agrees that Summa Four has a proprietary interest in Summa
Four's confidential information or data (hereinafter "Confidential
Information"). Junction acknowledges and agrees that in the course of its
performance of this Subcontract the Confidential Information may be made known
or made available to Junction. During and after the term of this Subcontract,
all disclosures to Junction, its agents and employees shall be held in strict
confidence by Junction, which shall disclose the Confidential Information only
to those of its subcontractors to whom it is necessary in order to properly
carry out their duties as limited by the terms and conditions hereof. During and
after the term of this Subcontract, Junction shall not use the Confidential
Information except for the purposes of exercising its rights and carrying out
its duties hereunder. The provisions of this Section 7.1 shall also apply to any
consultants or subcontractors during and after the term of this Agreement, that
Junction may engage in connection with its obligations under this Subcontract.
7.2 Notwithstanding anything contained in this Subcontract to the
contrary, Junction shall not be liable for a disclosure of Confidential
Information if the information so disclosed:
(a) was in the public domain at the time it was disclosed by Summa
Four or LLC to Junction; or
(b) was known to or contained in the records of Junction from a
source other than LLC or Summa Four at the time of disclosure by LLC or Summa
Four to Junction and can be so demonstrated; or
(c) becomes known to Junction from a source other than LLC or
Summa Four without breach of such source's confidentiality obligations to LLC or
Summa Four and can be so demonstrated; or
(d) was disclosed pursuant to court order or as otherwise
compelled by law.
-5-
<PAGE> 94
7.3 Upon termination or expiration of this Subcontract, as the case may
be, Junction shall, at the request of Summa Four, either promptly return to
Summa Four or dispose of all Confidential Information in any form whatsoever
which it may have in its possession, custody or control (whether direct or
indirect).
7.4 Junction hereby agrees, and shall cause each of its shareholders,
employees and consultants to agree in writing that, for the one-year period
immediately following the end of the term of this Subcontract, neither Junction
nor they shall directly or indirectly engage in any activity which is or would
be competitive with the LLC, the Product or any variation or derivative thereof.
Each such agreement shall contain an acknowledgment by such shareholder,
employee or consultant, as the case may be, that Summa Four is a third-party
beneficiary of such agreement, and that Summa Four shall have a right to enforce
such agreement directly against such shareholder, employee or consultant.
Junction agrees and acknowledges the payments to be made by Summa Four to
Junction hereunder are sufficient to compensate Junction and its shareholders,
employees and consultants for the non-competition obligation set forth in this
Section 7.4, and Junction shall pay each such person such amounts as are
necessary to compensate them for such non-competition obligations.
8. MISCELLANEOUS.
8.1 This Subcontract and any and all of the rights and obligations of
either Party hereunder shall not be assigned, delegated, sold, transferred or
otherwise disposed of, by operation of law or otherwise, without the prior
written consent of the other Party. This Subcontract shall be binding upon, and
inure to the benefit of, Junction and LLC and their respective successors and
assigns, to the extent such assignments are in accordance with this Section 8.1.
8.2 This Subcontract shall be governed, interpreted and construed in
accordance with the laws of the State of New Hampshire applicable to agreements
made and to be fully performed therein.
8.3 Any dispute, controversy or claim arising out of or relating to
this Subcontract, or to a breach thereof, including its interpretation,
performance or termination, shall be submitted to and finally resolved by
arbitration. The arbitration shall be conducted in accordance with the
commercial rules of the American Arbitration Association (AAA), which shall
administer the arbitration and act as appointing authority. The arbitration,
including the rendering of the award, shall take place in Manchester, New
Hampshire, and shall be the exclusive forum for resolving such dispute,
controversy or claim. The arbitration shall be conducted by three (3)
arbitrators, one (1) to be appointed by Junction, one (1) to be appointed by LLC
and the remaining arbitrator being nominated by the arbitrators so selected or,
if they cannot agree on the remaining arbitrator, by the President of the AAA.
The decision of the arbitrators shall be executory, final and binding upon the
Parties hereto, and the expense of the arbitration (including without limitation
the award of attorneys' fees to the prevailing Party) shall be paid as the
arbitrators determine. Judgment upon the award of the
-6-
<PAGE> 95
arbitration may be entered in any court where the arbitration takes place or any
court having jurisdiction thereof, and application may be made to any court for
a judicial acceptance of the award or order of enforcement. Notwithstanding
anything contained in this Section 8.3 to the contrary, each Party shall have
the right to institute judicial proceedings against the other Party or anyone
acting by, through or under such other Party in order to enforce the instituting
Party's rights hereunder through reformation of contract, specific performance,
injunction or similar equitable relief.
8.4 A waiver of any breach of any provision of this Subcontract shall
not be construed as a continuing waiver of other breaches of the same or other
provisions of this Subcontract.
8.5 Nothing herein contained shall be deemed to create a joint venture,
employer-employee, agency or partnership relationship between the Parties
hereto. Neither Party shall have any power to enter into any contracts or
commitments in the name of, or on behalf of, the other Party, or to bind the
other Party in any respect whatsoever.
8.6 Each notice required or permitted to be sent under this Subcontract
shall be given by telecopy transmission or by registered or recorded delivery
letter to Junction and to LLC at the their addresses and telecopy numbers set
forth above. Either Party may change its address and/or telecopy number for
purposes of this Subcontract by giving the other party written notice of its new
address and/or telecopy number. Any properly addressed notice if given or made
by registered or recorded delivery letter shall be deemed to have been received
on the earlier of the date actually received and the date five (5) days after
the same was posted (and in proving such it shall be sufficient to prove that
the envelope containing the same was properly addressed and posted as aforesaid)
and if given or made by telecopy transmission shall be deemed to have been
received at the time of dispatch, unless such date of deemed receipt is not a
day on which banks are open for business in Manchester, New Hampshire, in which
case the date of deemed receipt shall be the next succeeding business day.
8.7 This Subcontract embodies the entire understanding between the
Parties relating to the subject matter hereof, whether written or oral, and
there are no prior representations, warranties or Subcontracts between the
Parties not contained in this Subcontract.
8.8 If any provision of this Subcontract is declared invalid or
unenforceable by a court having competent jurisdiction, it is mutually agreed
that this Subcontract shall endure except for the part declared invalid or
unenforceable by order of such court. The Parties shall consult and use their
best efforts to agree upon a valid and enforceable provision which shall be a
reasonable substitute for such invalid or unenforceable provision in light of
the intent of this Subcontract.
8.9 Any amendment or modification of any provision of this Subcontract
must be in writing, dated and signed by both Parties hereto.
-7-
<PAGE> 96
8.10 Notwithstanding anything else in this Subcontract to the contrary,
the parties agree that Section 1.7 and Articles 2, 4, 7 and 8 shall survive the
expiration of this Subcontract to the extent required thereby for the full
observation and performance by any or all of the parties hereto.
8.11 Each of Junction and LLC covenants and agrees that all of its
activities under or pursuant to this Subcontract shall comply with all
applicable laws, rules and regulations.
8.12 Any headings contained herein are for directory purposes only, do
not constitute a part of this Subcontract, and shall not be employed in
interpreting this Subcontract.
8.13 This Subcontract may be executed in any number of counterparts and
each such counterpart shall be deemed to be an original.
8.14 For the purposes of Article 8 above, Junction acknowledges that
Summa Four is a third-party beneficiary of this Agreement, and that Summa Four
shall have a right to enforce the confidentiality obligations contained in
Article 8 directly against Junction.
IN WITNESS WHEREOF, the Parties hereto have signed this Subcontract.
SUMMATION LLC
By________________________________
Name:
Title:
JUNCTION, INC.
By________________________________
Name:
Title:
-8-
<PAGE> 97
EXHIBIT A
Development Plan
5/15/98 Board layout and fabrication and testing to be completed.
5/15/98 Software integration to be completed.
6/30/98 Test and initial data release to be completed.
T.B.D. Additional milestones to be mutually determined after Beta release.
<PAGE> 98
EXHIBIT B
Sublicensed Summa Four Technology
To be mutually agreed upon by the parties.
<PAGE> 99
EXHIBIT III TO OPERATING AGREEMENT
SUMMA LICENSE
THIS SUMMA LICENSE (this "Agreement") is made and entered into as of
April 3, 1998 (the "Effective Date") by and between SUMMA FOUR, INC. ("Summa
Four"), a Delaware corporation with offices at 25 Sundial Avenue, Manchester,
New Hampshire 03103, Telecopy No. 603-695-1242, and SUMMATION LLC ("LLC" and
together with Summa Four shall be referred to as the Parties to this Agreement),
a Delaware limited liability company with offices at 25 Sundial Avenue,
Manchester, New Hampshire 03103, Telecopy No. 603-695-1242.
WHEREAS, LLC was formed as of the date hereof pursuant to an Operating
Agreement executed by Summa Four and Junction, Inc. (the "Operating Agreement").
NOW, THEREFORE, in consideration of the mutual promises, terms and
conditions hereinafter set forth, and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the Parties do hereby
agree as follows:
1. Grant of License:
1.1 For the period beginning on the Effective Date through March 31,
2003, LLC hereby grants Summa Four a paid-up, royalty-free, exclusive, worldwide
license (with the right to sublicense) to make, have made, copy, modify,
enhance, prepare derivative works of, import and distribute the Product (as
defined in the Operating Agreement) and related documentation (the
"Documentation").
1.2 In the event of a material breach of any of the provisions hereof
by either party, the non-breaching party may seek to recover monetary damages
against the breaching party in accordance with Section 2.6 below. The
non-breaching party shall not have the right to terminate this Agreement.
2. Miscellaneous Provisions:
2.1 This Agreement shall be governed, interpreted and construed in
accordance with the laws of the State of New Hampshire applicable to agreements
made and to be fully performed therein.
2.2 Any dispute, controversy or claim arising out of or relating to
this Agreement, or to a breach thereof, including its interpretation,
performance or termination, shall be submitted to and finally resolved by
arbitration. The arbitration shall be conducted in accordance with the
commercial rules of the American Arbitration Association (AAA), which shall
administer the arbitration and act as appointing authority. The arbitration,
including the rendering of the award, shall take place in Manchester, New
Hampshire, and shall be the
<PAGE> 100
exclusive forum for resolving such dispute, controversy or claim. The
arbitration shall be conducted by three (3) arbitrators, one (1) to be appointed
by LLC, one (1) to be appointed by Summa Four and the remaining arbitrator being
nominated by the arbitrators so selected or, if they cannot agree on the
remaining arbitrator, by the President of the AAA. The decision of the
arbitrators shall be executory, final and binding upon the Parties hereto, and
the expense of the arbitration (including without limitation the award of
attorneys' fees to the prevailing Party) shall be paid as the arbitrators
determine. Judgment upon the award of the arbitration may be entered in any
court where the arbitration takes place or any court having jurisdiction
thereof, and application may be made to any court for a judicial acceptance of
the award or order of enforcement. Notwithstanding anything contained in this
Section 2.2 to the contrary, each Party shall have the right to institute
judicial proceedings against the other Party or anyone acting by, through or
under such other Party in order to enforce the instituting Party's rights
hereunder through reformation of contract, specific performance, injunction or
similar equitable relief.
2.3 A waiver of any breach of any provision of this Agreement shall not
be construed as a continuing waiver of other breaches of the same or other
provisions of this Agreement.
2.4 Nothing herein contained shall be deemed to create a joint venture,
employer-employee, agency or partnership relationship between the Parties
hereto. Neither Party shall have any power to enter into any contracts or
commitments in the name of, or on behalf of, the other Party, or to bind the
other Party in any respect whatsoever.
2.5 This Agreement embodies the entire understanding between the
Parties relating to the subject matter hereof, whether written or oral, and
there are no prior representations, warranties or agreements between the Parties
not contained in this Agreement.
2.6 If any provision of this Agreement is declared invalid or
unenforceable by a court having competent jurisdiction, it is mutually agreed
that this Agreement shall endure except for the part declared invalid or
unenforceable by order of such court. The Parties shall consult and use their
best efforts to agree upon a valid and enforceable provision which shall be a
reasonable substitute for such invalid or unenforceable provision in light of
the intent of this Agreement.
2.7 Any amendment or modification of any provision of this Agreement
must be in writing, dated and signed by both Parties hereto.
2.8 Any headings contained herein are for directory purposes only, do
not constitute a part of this Agreement, and shall not be employed in
interpreting this Agreement.
2.9 This Agreement may be executed in any number of counterparts and
each such counterpart shall be deemed to be an original.
-2-
<PAGE> 101
IN WITNESS WHEREOF, the Parties hereto have signed this Agreement.
SUMMA FOUR, INC.
By__________________________________
Name:
Title:
SUMMATION LLC.
By__________________________________
Name:
Title:
-3-
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAR-31-1999
<PERIOD-START> APR-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 4,536
<SECURITIES> 13,480
<RECEIVABLES> 11,650
<ALLOWANCES> 472
<INVENTORY> 5,569
<CURRENT-ASSETS> 38,649
<PP&E> 18,417
<DEPRECIATION> 11,119
<TOTAL-ASSETS> 57,241
<CURRENT-LIABILITIES> 10,528
<BONDS> 0
0
0
<COMMON> 66
<OTHER-SE> 45,774
<TOTAL-LIABILITY-AND-EQUITY> 57,241
<SALES> 9,678
<TOTAL-REVENUES> 9,678
<CGS> 4,446
<TOTAL-COSTS> 4,446
<OTHER-EXPENSES> 6,523
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2
<INCOME-PRETAX> 3,363
<INCOME-TAX> 1,076
<INCOME-CONTINUING> 2,287
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,287
<EPS-PRIMARY> 0.40
<EPS-DILUTED> 0.39
</TABLE>
