<PAGE> 1
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
FILED BY THE REGISTRANT [X] FILED BY A PARTY OTHER THAN THE REGISTRANT [ ]
- --------------------------------------------------------------------------------
Check the appropriate box:
[ ] Preliminary Proxy Statement
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to sec.240.14a-11(c) or sec.240.14a-12
[ ] Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
Summa Four, Inc.
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement)
PAYMENT OF FILING FEE (CHECK THE APPROPRIATE BOX):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
1) Title of each class of securities to which transaction applies:
2) Aggregate number of securities to which transaction applies:
3) Per unit price or other underlying value of transaction computed pursuant
to Exchange Act
Rule 0-11 (Set forth the amount on which the filing fee is calculated and
state how it was determined):
4) Proposed maximum aggregate value of transaction:
5) Total fee paid:
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
2) Form, Schedule or Registration Statement No.:
3) Filing Party:
4) Date Filed:
- --------------------------------------------------------------------------------
<PAGE> 2
SUMMA FOUR, INC.
25 SUNDIAL AVENUE
MANCHESTER, NEW HAMPSHIRE 03103-7251
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON JULY 27, 1998
The Annual Meeting of Stockholders of Summa Four, Inc. (the "Company") will
be held at the Company, 25 Sundial Avenue, Manchester, New Hampshire 03103 at
10:00 a.m., local time, to consider and act upon the following matters:
1. To elect six directors to serve for the ensuing year.
2. To approve and adopt the Company's 1998 Stock Incentive Plan.
3. To approve amendments to the Company's 1993 Director Stock Option Plan.
4. To ratify the selection of Coopers & Lybrand L.L.P. by the Board of
Directors as the Company's independent accountants for the current
fiscal year.
5. To transact such other business as may properly come before the meeting
or any adjournment thereof.
Stockholders of record at the close of business on June 15, 1998 will be
entitled to notice of and to vote at the meeting or any adjournment thereof. The
stock transfer books of the Company will remain open.
All stockholders are cordially invited to attend the meeting.
By Order of the Board of Directors,
PAUL C. SEMPLE
Secretary
Manchester, New Hampshire
June 26, 1998
WHETHER OR NOT YOU EXPECT TO ATTEND THE MEETING, PLEASE COMPLETE, DATE AND
SIGN THE ENCLOSED PROXY AND MAIL IT PROMPTLY IN THE ENCLOSED ENVELOPE IN ORDER
TO ENSURE REPRESENTATION OF YOUR SHARES. NO POSTAGE NEED BE AFFIXED IF THE PROXY
IS MAILED IN THE UNITED STATES.
<PAGE> 3
SUMMA FOUR, INC.
25 SUNDIAL AVENUE
MANCHESTER, NEW HAMPSHIRE 03103-7251
PROXY STATEMENT FOR THE ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON JULY 27, 1998
This Proxy Statement is furnished in connection with the solicitation of
proxies by the Board of Directors of Summa Four, Inc. (the "Company") for use at
the Annual Meeting of Stockholders to be held on July 27, 1998 and at any
adjournments of that meeting (the "Annual Meeting"). All proxies will be voted
in accordance with the stockholders' instructions, and if no choice is
specified, the proxies will be voted in favor of the matters set forth in the
accompanying Notice of Meeting. Any proxy may be revoked by a stockholder at any
time before its exercise by delivery of written revocation or a subsequently
dated proxy to the Secretary of the Company or by voting in person at the Annual
Meeting.
The Company's Annual Report to Stockholders for 1998 is being mailed to
stockholders concurrently with this Proxy Statement.
VOTING SECURITIES AND VOTES REQUIRED
At the close of business on June 15, 1998, the record date for the
determination of stockholders entitled to vote at the Annual Meeting, there were
outstanding and entitled to vote an aggregate of 5,771,425 shares of common
stock, $.01 par value per share, of the Company (the "Common Stock").
Stockholders are entitled to one vote per share.
The presence or representation of holders of a majority of the number of
shares of Common Stock issued, outstanding and entitled to vote at the Annual
Meeting constitutes a quorum for the transaction of business at the Annual
Meeting. Shares of Common Stock present in person or represented by proxy
(including shares which abstain or do not vote with respect to one or more of
the matters presented for stockholder approval) will be counted for purposes of
determining whether a quorum is present.
The affirmative vote of the holders of a plurality of the votes cast by the
stockholders entitled to vote at the Annual Meeting is required for the election
of directors. Additionally, the affirmative vote of the holders of a majority of
the shares of Common Stock present or represented and voting is required for
approval of the Company's 1998 Stock Incentive Plan, to amend the Company's 1993
Director Stock Option Plan and to ratify the selection of Coopers & Lybrand
L.L.P. as the Company's independent accountants for the current fiscal year.
Shares which abstain from voting as to a particular matter, and shares held
in "street name" by brokers or nominees who indicate on their proxies that they
do not have discretionary authority to vote such shares as to a particular
matter, will not be counted as votes in favor of such matter and will also not
be counted as votes cast or shares voting on such matter.
<PAGE> 4
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information as of June 1, 1998 with
respect to the beneficial ownership of the Company's Common Stock by (i) each
person known by the Company to beneficially own more than 5% of the outstanding
shares of Common Stock, (ii) each director and each person nominated to become a
director of the Company, (iii) each executive officer of the Company named in
the Summary Compensation Table set forth under the caption "Executive
Compensation" below and (iv) all directors and executive officers of the Company
as a group:
<TABLE>
<CAPTION>
NUMBER OF PERCENTAGE OF
SHARES COMMON
BENEFICIALLY STOCK
BENEFICIAL OWNER OWNED(1) OUTSTANDING(2)
---------------- ------------ --------------
<S> <C> <C>
Kopp Investment Advisors, Inc.(3)........................... 814,863 14.1%
State of Wisconsin Investment Board(4)...................... 563,900 9.8%
Dimensional Fund Advisors Inc.(5)........................... 321,300 5.6%
EQSF Advisers, Inc.(6)...................................... 197,300 3.4%
M.J. Whitman Advisers, Inc.(6).............................. 110,800 1.9%
Edgar L. Brown, Jr.(7)...................................... 9,900 *
Philip T. Coates(8)......................................... 11,220 *
Robert A. Degan(9).......................................... 54,067 *
Barry R. Gorsun(10)......................................... 184,170 3.2%
Todd P. Hasselbeck(11)...................................... 29,500 *
Russell I. Pillar(12)....................................... 5,300 *
Gordon T. Ray(13)........................................... 16,525 *
John A. Shane(14)........................................... 54,357 0.9%
John H. Shaw(15)............................................ 16,968 *
Richard S. Swee(16)......................................... 10,000 *
All directors and executive officers as a group (11
Persons)(17).............................................. 394,197 6.8%
</TABLE>
- ---------------
* Less than 1%.
(1) The inclusion herein of any shares of Common Stock deemed beneficially
owned does not constitute an admission of beneficial ownership of such
shares. Any reference in the footnotes below to stock options held by the
person in question relates to stock options which are currently exercisable
or exercisable within 60 days after June 1, 1998.
(2) The number of shares deemed outstanding with respect to a named person
includes shares outstanding as of June 1, 1998 plus any shares subject to
options held by the person in question that are currently exercisable or
excisable within 60 days after June 1, 1998.
(3) The information reported is based on a Schedule 13G, dated February 10,
1998, filed with the Securities and Exchange Commission (the "Commission")
by Kopp Investment Advisors, Inc.
(4) The information reported is based on a Schedule 13G, dated January 27,
1998, filed with the Commission by State of Wisconsin Investment Board.
(5) The information reported is based on a Schedule 13G, dated February 10,
1998, filed with the Commission by Dimensional Fund Advisors, Inc.
(6) The information reported is based on a Schedule 13G, dated February 13,
1998, jointly filed with the Commission by EQSF Advisers, Inc. ("EQSF"),
M.J. Whitman Advisers, Inc. ("MJWA") and Martin J. Whitman, Chief Executive
Officer of EQSF and MJWA and controlling person of EQSF and MJWA.
2
<PAGE> 5
(7) Mr. Brown is a director of the Company. Includes 9,200 shares issuable
pursuant to options exercisable within 60 days after June 1, 1998.
(8) Mr. Coates is Vice President, International Sales of the Company. Comprised
solely of shares issuable pursuant to options exercisable within 60 days
after June 1, 1998.
(9) Mr. Degan is President, Chief Executive Officer and a director of the
Company. Includes 48,067 shares issuable pursuant to options exercisable
within 60 days after June 1, 1998
(10) Mr. Gorsun is Chairman of the Board of Directors of the Company. Includes
44,500 shares issuable pursuant to options exercisable within 60 days after
June 1, 1998.
(11) Mr. Hasselbeck is Vice President, Worldwide Sales of the Company. Includes
15,000 shares issuable pursuant to options exercisable within 60 days after
June 1, 1998.
(12) Mr. Pillar is a director of the Company. Comprised solely of shares
issuable pursuant to options exercisable within 60 days after June 1, 1998.
(13) Mr. Ray is a director of the Company. Includes 15,375 shares issuable
pursuant to options exercisable within 60 days after June 1, 1998.
(14) Mr. Shane is a director of the Company. Includes 12,575 shares issuable
pursuant to options exercisable within 60 days after June 1, 1998.
(15) Mr. Shaw is Vice President, Business Development and Planning of the
Company. Includes 5,234 shares issuable pursuant to options exercisable
within 60 days after June 1, 1998.
(16) Mr. Swee is Vice President, Engineering of the Company. Comprised solely of
shares issuable pursuant to options exercisable within 60 days after June
1, 1998.
(17) Includes an aggregate of 176,471 shares issuable pursuant to options
exercisable within 60 days after June 1, 1998.
ELECTION OF DIRECTORS
The persons named in the enclosed proxy will vote to elect as directors the
six nominees named below, unless authority to vote for the election of any or
all of the nominees is withheld by marking the proxy to that effect. Each of the
nominees currently serves as a director of the Company. All of the nominees have
indicated their willingness to serve, if elected, but if any of the nominees
should be unable or unwilling to serve, proxies may be voted for substitute
nominee(s) designated by the Board of Directors.
NOMINEES
Set forth below are the name, age, positions with the Company, principal
occupation and business experience during the past five years and the names of
other publicly-held corporations of which each of the nominees for election to
the Board of Directors of the Company serves as a director and the date when
each such person first became a director of the Company:
Mr. Barry R. Gorsun, 55, has been Chairman of the Board of Directors since
July 1993 and has been a director of the Company since July 1988. From July 1988
to July 1993, Mr. Gorsun was President of the Company and from July 1988 to
December 1996 he was Chief Executive Officer of the Company.
Mr. Edgar L. Brown, Jr., 66, has been a director of the Company since
October 1995. Mr. Brown was President and Chief Executive Officer of Bell
Atlantic International from May 1992 to May 1995. From July 1988 to May 1992,
Mr. Brown was President of Europe Bell Atlantic International. Mr. Brown is also
a Director of Moss Micro, Inc., a software development company.
3
<PAGE> 6
Mr. Robert A. Degan, 59, has served as a director of the Company since July
1984. Mr. Degan has been President and Chief Executive Officer since January
1997. From August 1996 to December 1996, Mr. Degan served as an Executive Vice
President of Sync Research, Inc. From April 1991 to August 1996, Mr. Degan
served as a director, President and Chief Executive Officer of TyLink, Corp., a
data communications company.
Mr. Russell I. Pillar, 32, has served as a director of the Company since
March 1997. Mr. Pillar has been President and Chief Executive Officer of Prodigy
Communications Corporation, an internet and online service provider, since
October 1997 and a director of Prodigy since October 1996. Mr. Pillar has also
been Managing Partner of Critical Mass, a start-up capital firm, since 1991.
From December 1993 through October 1996, Mr. Pillar was President, Chief
Executive Officer and a director of Precision Systems, Inc. Mr. Pillar is also
director of Telescan, Inc.
Mr. Gordon T. Ray, 70, has served as a director of the Company since May
1994. Mr. Ray has been President of Global Information Limited since October
1993. From October 1985 to September 1993, Mr. Ray was an Executive Vice
President of NEC America, Inc. and formerly served as a member of its Board of
Directors. Mr. Ray currently serves as a member of the Board of Directors of
Numerex Corp. Mr. Ray is also a member of the Board of Directors of the
Telephone Industry Association, member of the Electronics Industries Association
Board of Governors and a Fellow of the Royal Society of Arts, Manufacturing and
Commerce.
Mr. John A. Shane, 65, has served as a director of the Company since June
1976. Mr. Shane has been President of Palmer Service Corporation since its
organization in July 1972. Mr. Shane is a general partner of The Palmer Partners
L.P., the general partner of the Palmer Organization III L.P., a venture capital
partnership. Mr. Shane is also a director of Arch Communications Group, Inc.,
Eastern Bank Corp., Gensym Corporation, Overland Data, Inc. and United Asset
Management Corporation and is a trustee of the New England Funds Group.
BOARD AND COMMITTEE MEETINGS
The Company has a standing Audit Committee of the Board of Directors, which
reviews the Company's internal accounting control policies and procedures,
considers and recommends the selection of the Company's independent accountants,
reviews and approves any major accounting policy changes affecting the Company's
operating results and provides the opportunity for direct contact between the
Company's independent accountants and the Board. The Company's consolidated
financial statements are currently audited by Coopers & Lybrand L.L.P. The Audit
Committee met four times during fiscal 1998. The current members of the Audit
Committee are Messrs. Brown, Ray, Shane and Pillar.
The Company has a standing Compensation Committee of the Board of
Directors, which provides recommendations to the Board regarding compensation
programs of the Company and has authority to grant stock options under the
Company's stock option and incentive plans to all officers of the Company who
are persons required to file reports ("Reporting Persons") pursuant to Section
16(a) of the Exchange Act. The Compensation Committee also administers the
Company's 1993 Employee Stock Purchase Plan. The Compensation Committee met four
times during fiscal 1998. The current members of the Compensation Committee are
Messrs. Brown, Ray and Shane.
The Company has a standing Directors Affairs Committee of the Board of
Directors, which establishes membership criteria, identifies, recruits and
nominates qualified candidates to serve on the Board of Directors and assesses
the Board's performance. The Directors Affairs Committee met two times in fiscal
1998. The current members of the Directors Affairs Committee are Messrs. Gorsun,
Pillar and Shane.
4
<PAGE> 7
The Board of Directors held 11 meetings during fiscal 1998. Each director
attended at least 75% of the aggregate number of Board meetings and meetings
held by all committees on which he then served.
DIRECTOR COMPENSATION
The Company pays to all non-employee directors an annual fee of $10,000 and
a fee of $1,000 for each meeting attended and $1,500 per quarter for committee
membership. The Company also reimburses all of its directors for their
out-of-pocket expenses incurred in the performance of their duties as directors
of the Company.
DIRECTOR STOCK OPTIONS
Currently, under the Company's 1993 Director Stock Option Plan ("Director
Plan") each director who is not an employee of the Company receives upon his
initial election an option to purchase 7,000 shares of Common Stock ("Initial
Options") and additional options at the time of each annual meeting of
stockholders to purchase 2,500 shares of Common Stock ("Annual Options"). The
exercise price of Initial Options and Annual Options is equal to the fair market
value of the Company's Common Stock on the relevant date of grant. Initial
Options become exercisable in installments of 20% commencing on the grant date
and the subsequent four anniversaries of the grant date and Annual Options are
immediately exercisable. In May 1998, the Board of Directors voted to amend the
Director Plan, subject to stockholder approval, commencing January 1, 1999, to
increase the number of shares issuable pursuant to Initial Option grants from
7,000 to 10,000 and the number of shares issuable pursuant to Annual Option
grants from 2,500 to 5,000 shares. For a further description of the Director
Plan, see "Approval of Amendments to the 1993 Director Stock Option Plan."
MANAGEMENT
Executive Officers. The current executive officers of the Company are as
follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Robert A. Degan........................... 59 President, Chief Executive Officer and Director
Philip T. Coates.......................... 60 Vice President, International Sales
Jeffrey A. Weber.......................... 52 Vice President, Finance and Chief Financial
Officer
Todd P. Hasselbeck........................ 42 Vice President, Sales
John H. Shaw.............................. 40 Vice President, Business Development and
Planning
Richard S. Swee........................... 52 Vice President, Engineering
</TABLE>
Mr. Degan has been nominated for election to the Board of Directors at the
Annual Meeting. See "Election of Directors -- Nominees."
Mr. Coates has been Vice President, International Sales of the Company
since May 1997. From October 1993 to April 1997, Mr. Coates was Vice President
and General Manager of Summa Four Pte., Limited, a wholly owned subsidiary of
the Company.
Mr. Weber joined the Company in July 1997 as Vice President, Finance and
Chief Financial Officer. From 1994 to 1997, Mr. Weber was Senior Vice
President-Operations and Finance, and Treasurer of Computer Identics, a
manufacturer of bar code data collection products. From 1991 to 1994, Mr. Weber
was first Vice President-Finance and Chief Operating Officer, and then President
and Chief Executive Officer to Geo. K. Keith Company, a shoe manufacturer.
Mr. Hasselbeck has been Vice President, Worldwide Sales of the Company
since November 1996. From July 1992 to November 1996, Mr. Hasselbeck was Vice
President, International Sales of Boston Technology,
5
<PAGE> 8
Inc. From January 1991 to June 1992, Mr. Hasselbeck was Vice President, Eastern
Region of ITEC Communications.
Mr. Shaw has been Vice President, Business Development and Planning of the
Company since April 1996. From June 1991 to June 1996 Mr. Shaw was Director of
Marketing for the Company.
Mr. Swee has been Vice President, Engineering since May 1997. From November
1995 to April 1997, Mr. Swee was Vice President, Engineering and Platform
Systems for TyLink/Sync Research, Inc., a data communications company. From 1994
to 1995, Mr. Swee was Vice President, Engineering/Network Products Division for
UB Networks, Inc., an ATM and network switch manufacturer. From 1989 to 1994,
Mr. Swee was Vice President, Systems and Networking, for Kendell Square Research
Corporation, a computer manufacturer.
Executive officers serve at the discretion of the Board of Directors. There
are no family relationships among any of the Company's directors or executive
officers.
EXECUTIVE COMPENSATION
Summary Compensation. The following table sets forth certain information
concerning the compensation for each of the last three fiscal years of the
persons who served as the Company's Chief Executive Officer during fiscal year
1998 and the Company's four other most highly compensated executive officers who
were serving as executive officers at the end of fiscal year ended March 31,
1998 (collectively, the "Named Executive Officers"):
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL ------------
COMPENSATION SECURITIES ALL
----------------- UNDERLYING OTHER
FISCAL SALARY BONUS OPTIONS COMPENSATION
NAME AND PRINCIPAL POSITION YEAR ($) ($)(1) (SHARES) ($)(2)
--------------------------- ------ ------ ------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Robert A. Degan(3).................... 1998 225,000 28,125 25,000 5,545
Chief Executive Officer, 1997 54,661 -- 127,500 571
President and Director 1996 -- -- 2,500 --
Philip T. Coates(4)................... 1998 157,007 2,075 15,000 280,178
Vice President, 1997 -- -- 5,000 --
International Sales 1996 -- -- 2,110 --
Todd P. Hasselbeck(5)................. 1998 167,060 15,625 15,000 2,951
Vice President, 1997 50,481 21,714 45,000 --
Sales 1996 -- -- -- --
John H. Shaw(6)....................... 1998 129,231 16,250 10,000 2,644
Vice President, 1997 116,502 -- 16,750 2,746
Business Development and Planning 1996 -- -- 1,000 --
Richard S. Swee(7).................... 1998 135,577 18,750 45,000 1,301
Vice President, 1997 -- -- -- --
Engineering 1996 -- -- -- --
</TABLE>
- ---------------
(1) The amounts shown in the "Bonus" column represent bonuses earned during the
period shown. Bonuses are paid in the fiscal year after the fiscal year in
which they are earned.
(2) Unless otherwise indicated, the amounts shown in the "All Other
Compensation" column represent amounts paid by the Company into its 401(k)
Plan, life insurance premiums for coverage in excess of
6
<PAGE> 9
$50,000 and Company-related transportation expenses on behalf of each of the
Named Executive Officers.
(3) Mr. Degan was appointed in January 1997 as President and Chief Executive
Officer of the Company. Mr. Degan has also been a director of the Company
since 1984.
(4) Mr. Coates has been Vice President, International Sales of the Company since
May 1997. From October 1993 to April 1997, Mr. Coates was Vice President and
General Manager of Summa Four Pte., Limited, a wholly owned subsidiary of
the Company. Also, the amount shown in the "All Other Compensation" column
for fiscal year 1998 includes $174,796 reimbursement for relocation expenses
and $101,571 reimbursement for foreign taxes paid.
(5) Mr. Hasselbeck joined the Company in November 1996 as Vice President,
Worldwide Sales.
(6) Mr. Shaw was appointed in April 1996 as Vice President, Business Development
and Planning of the Company.
(7) Mr. Swee joined the Company in May 1997 as Vice President, Engineering.
Option Grants. The following table sets forth certain information
concerning option grants during the fiscal year ended March 31, 1998 to the
Named Executive Officers and the number and value of the unexercised options
held by such persons on March 31, 1998.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
--------------------------------------------------- POTENTIAL
NUMBER REALIZABLE VALUE
OF PERCENT OF AT ASSUMED ANNUAL
SECURITIES TOTAL RATES OF STOCK
UNDERLYING OPTIONS PRICE APPRECIATION
OPTIONS GRANTED TO EXERCISE FOR OPTION TERM (1)
GRANTED EMPLOYEES PRICE EXPIRATION --------------------
NAME (#) FISCAL YEAR ($/Sh) DATE 5% ($) 10% ($)
- ---- ---------- ----------- -------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Robert A. Degan.............. 25,000 4.8 8.875 2/2/08 139,535 353,612
Philip T. Coates............. 15,000 2.9 8.75 5/5/07 82,524 209,179
Todd P. Hasselbeck........... 15,000 2.9 10.125 1/5/08 95,513 242,050
John H. Shaw................. 10,000 2.0 10.125 1/5/08 63,676 161,366
Richard S. Swee.............. 30,000 5.7 8.75 1/5/08 165,085 418,357
15,000 2.9 10.125 5/5/07 95,513 242,030
</TABLE>
- ---------------
(1) Amounts represent hypothetical gains that could be achieved for the
respective options if exercised at the end of the option term. These gains
are based on assumed rates of stock appreciation of 5% and 10% compounded
annually from the date the respective options were granted to their
expiration date. This table does not take into account any appreciation or
depreciation in the price of the Common Stock to date. Actual gain, if any,
on stock option exercises will depend on future performance of the Common
Stock and the date on which the options are exercised.
7
<PAGE> 10
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES VALUE OF
UNDERLYING UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS AT FISCAL OPTIONS AT FISCAL
SHARES YEAR-END (#) YEAR-END ($)(1)
ACQUIRED ----------------- -----------------
ON EXERCISE VALUE EXERCISABLE/ EXERCISABLE/
NAME (#) REALIZED($) UNEXERCISABLE UNEXERCISABLE
- ---- ----------- ----------- ------------- -------------
<S> <C> <C> <C> <C>
Robert A. Degan.................... -- -- 48,067/108,333 90,796/248,595
Philip T. Coates................... -- -- 4,376/ 21,954 59/ 30,089
Todd P. Hasselbeck................. -- -- 15,000/ 45,000 18,750/ 46,875
John H. Shaw....................... -- -- 7,851/ 17,899 28,658/ 6,292
Richard S. Swee.................... -- -- 0/ 45,000 0/ 69,375
</TABLE>
- ---------------
(1) The per share value of unexercised in-the-money options is calculated by
subtracting the per share option exercise price from the last per share sale
price of the Company's Common Stock on the Nasdaq National Market on March
31, 1998.
EMPLOYMENT AGREEMENTS WITH NAMED EXECUTIVE OFFICERS
Mr. Degan, the Company's President and Chief Executive Officer, has entered
into an employment agreement with the Company pursuant to which Mr. Degan
currently receives an annual base salary of $236,000 and is eligible on an
annual basis to receive a bonus of up to 40% of his then current base salary
based on the achievement of certain objectives, both personal and corporate.
Pursuant to the agreement, Mr. Degan also was granted a stock option to purchase
125,000 shares of the Company's Common Stock at the closing price on January 2,
1997, the commencement date of the agreement (the "Commencement Date"). The
option becomes exercisable in three equal installments on each anniversary of
the Commencement Date. Mr. Degan is entitled to severance benefits of continued
payment of his salary and insurance benefits for up to twelve months if his
employment is terminated by the Company without cause or if he terminates his
employment with the Company within one year after a change in control of the
Company as a result of a substantial diminution in the nature or status of his
responsibilities. The Company's obligation to pay any such severance payments
would end once Mr. Degan gains full-time employment in an executive position.
Messrs. Shaw, Hasselbeck, Weber, Swee and Coates have entered into
employment agreements, with the Company on terms similar to those of Mr. Degan's
agreement, except at lower compensation rates, varying stock option grants,
vesting schedules and bonus amounts; and severance and benefits continuation, in
the case of termination of employment by the Company without cause for periods
ranging from six to twelve months, and, in each case, for a period of 12 months
if the employee's employment is terminated within one year after a change in
control of the Company, either by the Company without cause or by the employee
as a result of a substantial diminution in the nature or status of his
responsibilities. Further, Mr. Coates is eligible to receive commissions and
bonuses equal to more than half his current salary and is granted a bi-weekly
goods and services allowance and quarterly housing allowance to offset the
higher costs of goods and services and housing related to his relocation to
London, England.
8
<PAGE> 11
CERTAIN TRANSACTIONS
During the fiscal year ended March 31, 1998, the Company entered into a
product development relationship with Junction, Inc. ("Junction"), a
California-based development company, and in April 1998, the parties formed
Summation LLC ("Summation") to assist with the development of a telco-capable,
programmable switching platform (the "Summation Development Project"). The
Company owns a 75% interest in Summation and Junction owns the remaining 25%
interest. The agreement between the parties provides for the Company to purchase
Junction's interest in Summation between 2000 and 2002. The value of Junction's
interest in Summation will be determined by a formula designed to calculate the
value of the Summation Development Project to the Company. Mr. Russell Pillar, a
director of the Company, owns a non-majority, but significant interest in
Junction. The Company paid approximately $982,000 to Junction during the fiscal
year ended March 31, 1998 for development services. The Company will fund the
Summation Development Project during fiscal 1999 and it is expected that
Junction will be paid approximately $1,100,000 during fiscal 1999 for
development services provided to the Summation Development Project.
On June 12, 1997, the Company and Mr. Gorsun, the Chairman of the Company,
and formerly its Chief Executive Officer, amended his employment agreement to
extend the period for exercise of stock options and to loan Mr. Gorsun up to
$500,000 to assist him with the payment of the exercise price of, and tax
obligations related to, the exercise of such stock options. In connection
therewith, Mr. Gorsun has issued to the Company promissory notes in the
aggregate principal amount of approximately $360,000, maturing on the earlier of
(i) January 29, 1999 or (ii) the date of sale of certain Common Stock held by
Mr. Gorsun.
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<PAGE> 12
REPORT OF THE COMPENSATION COMMITTEE
The Compensation Committee of the Board of Directors (the "Committee") is
composed of three non-employee directors. The Committee is responsible for
establishing and administering the policies which govern both annual
compensation and equity incentive compensation.
This report is submitted by the Committee and addresses the Company's
policies for fiscal 1998 as they apply to the Named Executive Officers.
Executive Compensation Philosophy. The Company's executive compensation
program is designed to provide compensation that attracts, motivates and retains
high caliber people to serve the Company's customers and achieve its strategic
objectives. The Company's executive compensation program is comprised of four
elements: (i) base salary; (ii) annual bonus; (iii) long term incentive
compensation in the form of stock options, and (iv) other benefits generally
available to all the Company's employees.
Base Salary and Annual Bonus. Cash compensation levels for the Company's
executive officers are based primarily on the Committee's subjective evaluation
of competitive salary levels of executive officers with similar backgrounds and
experience as the Company's executive officers. Each executive officer's cash
compensation is comprised of base salary and annual cash bonus. In determining
salary adjustments and cash bonus amounts, the Committee considers individual
performance and contributions to the Company. Salary and bonus levels are
reviewed by the Committee on an annual basis.
Long Term Incentive Compensation. The Company's long term incentive
compensation program is implemented through the grant of stock options. This
program is intended to both (i) align executive interests with the long-term
interests of stockholders by integrating long-term stock performance into each
executive officer's overall compensation package and (ii) through multi-year
vesting, provide an incentive for the Company's executive officers to remain
with the Company. Generally, stock options are granted at prevailing market
rates and only have value if the Company's stock price increases, thereby
providing an incentive for the Company's executive officers to improve long-term
stock market performance. Generally, stock options vest in three equal annual
installments and executive officers must be employed by the Company at the time
of vesting in order to exercise the options. The Committee determines the number
of shares subject to option grants to executive officers based on individual
accomplishments measured against certain non-budgeted objectives and
contributions to the Company. The Committee also considers the number, value and
vesting schedule of options already held by each executive officer.
Benefits. The Company's executive officers are entitled to receive medical
benefits and life insurance benefits and to participate in the Company's 401(k)
Savings Plan on the same basis as other full-time employees of the Company. The
Company's Employee Stock Purchase Plan, which is available to virtually all
employees, including executive officers, allows participants to purchase shares
at a discount of approximately 15% from the fair market value at the beginning
or end of the applicable purchase period.
Summary of Compensation of Chief Executive. The compensation philosophy
applied by the Compensation Committee in establishing the compensation for the
Company's President and Chief Executive Officer is the same as for the other
senior management of the Company -- to provide a competitive compensation
opportunity that rewards performance.
Mr. Degan served in the positions of President, Chief Executive Officer and
a director of the Company and was paid a salary of $225,000 during fiscal year
1998. Mr. Degan was granted stock options in fiscal year 1998 for the purchase
of 25,000 shares of Common Stock of the Company.
Compliance with Section 162(m) of the Internal Revenue Code of 1986, as
amended (the "Code"). Section 162(m) of the Code, enacted in 1993, generally
disallows tax deductions to publicly-traded
10
<PAGE> 13
corporations for compensation over $1,000,000 paid to the corporation's Chief
Executive Officer or any of its other four most highly compensated executive
officers. Qualifying performance-based compensation is not subject to this
disallowance if certain requirements are met. The Company currently intends to
structure the compensation arrangements of its executive officers in a manner
that will avoid disallowances under Section 162(m).
Compensation Committee
Edgar L. Brown, Jr., Chairman
Gordon T. Ray
John A. Shane
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The members of the Compensation Committee during fiscal 1998 were Messrs.
Brown, Ray and Shane, each of whom received options in July 1997 to purchase
2,500 shares of Common Stock of the Company at an exercise price equal to the
fair market value of the Company's Common Stock on the date of grant. No
executive officer is a member of the Compensation Committee.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Based solely on its review of copies of reports filed pursuant to Section
16(a) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"),
or written representations from persons required to file such reports
("Reporting Persons"), the Company believes that, except as follows, all such
filings required to be made by such Reporting Persons were timely made in
accordance with the Exchange Act. Forms 4 with respect to non-exempt option
grants in the month of July 1996 were filed on behalf of the Company's directors
on August 28, 1996. Such grants were made from the Company's 1995 Stock Option
Plan in lieu of, and in the same amount as, Annual Option grants which would
have been automatically granted under the Company's Director Plan, but for the
fact that there were not sufficient shares under such plan to effect the grants.
Forms 4 were filed in June 1998 on behalf of (i) Mr. Weber with respect to an
option grant in August 1997 and (ii) Mr. Shaw with respect to an option grant
and exercise in October 1996.
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<PAGE> 14
STOCK PERFORMANCE GRAPH
The following graph compares the cumulative total stockholder return on the
Common Stock of the Company during the period from September 23, 1993 (the date
on which the Company's Common Stock began trading on the Nasdaq National Market)
to March 31, 1998 with the cumulative total return over the same period of (i)
the Standard & Poor's 500 Stock Index and (ii) a Peer Group Index* selected by
the Company. This comparison assumes the investment of $100 on September 23,
1993 in the Company's Common Stock, the Standard & Poor's 500 Stock Index and
the Peer Group Index and assumes dividends, if any, are reinvested.
[STOCK PERFORMANCE GRAPH]
<TABLE>
<CAPTION>
Measurement Period
(Fiscal Year Covered) Summa Four S&P 500 Peer Group
<S> <C> <C> <C>
9/23/93 $100.00 $100.00 $100.00
3/31/94 198.53 97.68 85.72
3/31/95 142.65 112.89 94.68
3/31/96 77.94 149.13 123.75
3/31/97 44.12 178.69 147.22
3/31/98 63.24 264.47 188.51
</TABLE>
* The Peer Group Index reflects stock performance of the following companies:
ADC Telecommunications Inc., DSC Communications Corporation, Newbridge
Networks Corporation, Stratacom, Inc. and Tellabs, Inc.
PROPOSAL TO APPROVE THE COMPANY'S 1998 STOCK INCENTIVE PLAN
On May 11, 1998 the Board of Directors adopted the 1998 Stock Incentive
Plan (the "1998 Plan"), subject to stockholder approval. Up to 750,000 shares of
Common Stock (subject to adjustment in the event of stock splits and other
similar events) may be issued pursuant to awards granted under the 1998 Plan.
The Board of Directors believes that the future success of the Company
depends, in large part, upon the ability of the Company to maintain a
competitive position in attracting, retaining and motivating key personnel. The
Board believes that stock options are a significant element of the compensation
offered to the employees of the Company and that stock options are instrumental
to the Company's efforts to remain competitive in attracting, retaining and
motivating highly skilled personnel. Accordingly, the Board of Directors
believes adoption of the 1998 Plan is in the best interests of the Company and
its stockholders and recommends a vote FOR this proposal.
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<PAGE> 15
SUMMARY OF THE 1998 PLAN
The following summary of the 1998 Plan is qualified in its entirety by
reference to the 1998 Plan.
Description of Awards
The 1998 Plan provides for the grant of incentive stock options intended to
qualify under Section 422 of the Internal Revenue Code of 1986, as amended (the
"Code"), nonstatutory stock options, restricted stock awards and other
stock-based awards, including the grant of shares based upon certain conditions,
the grant of securities convertible into Common Stock and the grant of stock
appreciation rights (collectively "Awards").
Incentive Stock Options and Nonstatutory Stock Options. Optionees receive
the right to purchase a specified number of shares of Common Stock at a
specified option price and subject to such other terms and conditions as are
specified in connection with the option grant. Subject to the limitations
described below, options may be granted at an exercise price which may be less
than, equal to or greater than the fair market value of the Common Stock on the
date of grant. Under present law, however, incentive stock options and options
intended to qualify as performance-based compensation under Section 162(m) of
the Code may not be granted at an exercise price less than the fair market value
of the Common Stock on the date of grant (or less than 110% of the fair market
value in the case of incentive stock options granted to optionees holding more
than 10% of the voting power of the Company). Options may not be granted for a
term in excess of ten years. The 1998 Plan permits the Board to determine the
manner of payment of the exercise price of options, including payment of cash,
check or, in connection with a "cashless exercise," through a broker, by
surrender to the Company of shares of Common Stock, by delivery to the Company
of a promissory note, or by any other lawful means.
Restricted Stock Awards. Restricted Stock Awards entitle recipients to
acquire shares of Common Stock, subject to the right of the Company to
repurchase all or part of such shares from the recipient in the event that the
conditions specified in the applicable Award are not satisfied prior to the end
of the applicable restriction period established for such Award.
Other Stock-Based Awards. Under the 1998 Plan, the Board has the right to
grant other Awards based upon the Common Stock having such terms and conditions
as the Board may determine, including the grant of shares based upon certain
conditions, the grant of securities convertible into Common Stock and the grant
of stock appreciation rights.
Eligibility to Receive Awards
Officers, employees, directors, consultants and advisors of the Company and
its subsidiaries are eligible to be granted Awards under the 1998 Plan. Under
present law, however, incentive stock options may only be granted to employees.
The maximum number of shares with respect to which an Award may be granted to
any participant under the 1998 Plan may not exceed 200,000 shares per calendar
year. The 1998 Plan also limits to 100,000 the number of shares of Common Stock
subject to Awards that can be issued for less than fair market value as
determined on the date of grant.
As of June 15, 1998, approximately 214 persons were eligible to receive
Awards under the 1998 Plan, including the Company's executive officers and
non-employee directors. The granting of Awards under the 1998 Plan is
discretionary, and the Company cannot now determine the number or type of Awards
to be granted in the future to any particular person or group.
On June 15, 1998, the last reported sale price of the Company's Common
Stock on the Nasdaq National Market was $10.50.
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<PAGE> 16
Administration
The 1998 Plan is administered by the Board of Directors. The Board has the
authority to adopt, amend and repeal the administrative rules, guidelines and
practices relating to the 1998 Plan and to interpret the provisions of the 1998
Plan. Pursuant to the terms of the 1998 Plan, the Board of Directors may
delegate authority under the 1998 Plan to one or more committees of the Board,
and subject to certain limitations, to one or more executive officers of the
Company. The Board has authorized the Compensation Committee to administer
certain aspects of the 1998 Plan, including the granting of options to executive
officers. Subject to any applicable limitations contained in the 1998 Plan, the
Board of Directors, the Compensation Committee, or any other committee or
executive officer to whom the Board delegates authority, as the case may be,
selects the recipients of Awards and determines (i) the number of shares of
Common Stock covered by options and the dates upon which such options become
exercisable, (ii) the exercise price of options, (iii) the duration of options,
and (iv) the number of shares of Common Stock subject to any restricted stock or
other stock-based Awards and the terms and conditions of such Awards, including
conditions for repurchase, issue price and repurchase price.
The Board of Directors is required to make appropriate adjustments in
connection with the 1998 Plan and any outstanding Awards to reflect stock
dividends, stock splits and certain other events. In the event of a change in
control of the Company, the 1998 Plan provides that all Awards shall become
fully exercisable prior to the consummation of any such event, and the Board of
Directors is authorized to provide for outstanding options or other stock-based
Awards to be assumed or substituted for, or to provide for a cash out of the
value of any outstanding Awards. If any Award expires or is terminated,
surrendered, canceled or forfeited, the unused shares of Common Stock covered by
such Award will again be available for grant under the 1998 Plan.
Amendment or Termination
No Award may be made under the 1998 Plan after May 11, 2008, but Awards
previously granted may extend beyond that date. The Board of Directors may at
any time amend, suspend or terminate the 1998 Plan, except that no Award
designated as subject to Section 162(m) of the Code by the Board of Directors
after the date of such amendment shall become exercisable, realizable or vested
(to the extent such amendment was required to grant such Award) unless and until
such amendment shall have been approved by the Company's stockholders.
FEDERAL INCOME TAX CONSEQUENCES
The following is a summary of the United States federal income tax
consequences that generally will arise with respect to Awards granted under the
1998 Plan and with respect to the sale of Common Stock acquired under the 1998
Plan.
Incentive Stock Options
In general, a participant will not recognize taxable income upon the grant
or exercise of an incentive stock option. Instead, a participant will recognize
taxable income with respect to an incentive stock option only upon the sale of
Common Stock acquired through the exercise of the option ("ISO Stock"). The
exercise of an incentive stock option, however, may subject the participant to
the alternative minimum tax.
Generally, the tax consequences of selling ISO Stock will vary with the
length of time that the participant has owned the ISO Stock at the time it is
sold. If the participant sells ISO Stock after having owned it for at least two
years from the date the option was granted (the "Grant Date") and one year from
the date the option was exercised (the "Exercise Date"), then the participant
will recognize long-term capital gain in an amount equal to the excess of the
sale price of the ISO Stock over the exercise price.
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<PAGE> 17
If the participant sells ISO Stock for more than the exercise price prior
to having owned it for at least two years from the Grant Date and one year from
the Exercise Date (a "Disqualifying Disposition"), then all or a portion of the
gain recognized by the participant will be ordinary compensation income and the
remaining gain, if any, will be a capital gain. This capital gain will be a
long-term capital gain if the participant has held the ISO Stock for more than
one year prior to the date of sale.
If a participant sells ISO Stock for less than the exercise price, then the
participant will recognize capital loss equal to the excess of the exercise
price over the sale price of the ISO Stock. This capital loss will be a
long-term capital loss if the participant has held the ISO Stock for more than
one year prior to the date of sale.
Nonstatutory Stock Options
As in the case of an incentive stock option, a participant will not
recognize taxable income upon the grant of a nonstatutory stock option. Unlike
the case of an incentive stock option, however, a participant who exercises a
nonstatutory stock option generally will recognize ordinary compensation income
in an amount equal to the excess of the fair market value of the Common Stock
acquired through the exercise of the option ("NSO Stock") on the Exercise Date
over the exercise price.
With respect to any NSO Stock, a participant will have a tax basis equal to
the exercise price plus any income recognized upon the exercise of the option.
Upon selling NSO Stock, a participant generally will recognize capital gain or
loss in an amount equal to the excess of the sale price of the NSO Stock over
the participant's tax basis in the NSO Stock. This capital gain or loss will be
a long-term gain or loss if the participant has held the NSO Stock for more than
one year prior to the date of the sale.
Restricted Stock Awards
A participant will not recognize taxable income upon the grant of a
restricted stock Award, unless the participant makes an election under Section
83(b) of the Code (a "Section 83(b) Election"). If the participant makes a
Section 83(b) Election within 30 days of the date of the grant, then the
participant will recognize ordinary compensation income, for the year in which
the Award is granted, in an amount equal to the difference between the fair
market value of the Common Stock at the time the Award is granted and the
purchase price paid for the Common Stock. If a Section 83(b) Election is not
made, the participant will recognize ordinary compensation income, at the time
that the forfeiture provisions or restrictions on transfer lapse, in an amount
equal to the difference between the fair market value of the Common Stock at the
time of such lapse and the original purchase price paid for the Common Stock.
The participant will have a basis in the Common Stock acquired equal to the sum
of the price paid and the amount of ordinary compensation income recognized.
Upon the disposition of the Common Stock acquired pursuant to a restricted
stock Award, the participant will recognize a capital gain or loss equal to the
difference between the sale price of the Common Stock and the participant's tax
basis in the Common Stock. The gain or loss will be a long-term gain or loss if
the shares are held for more than one year. For this purpose, the holding period
shall begin just after the date on which the forfeiture provisions or
restrictions lapse if a Section 83(b) Election is not made, or just after the
Award is granted if a Section 83(b) Election is made.
Other Stock-Based Awards
The tax consequences associated with any other stock-based Award granted
under the 1998 Plan will vary depending on the specific terms of such Award.
Among the relevant factors are whether or not the Award has a readily
ascertainable fair market value, whether or not the Award is subject to
forfeiture provisions or restrictions on transfer, the nature of the property to
be received by the participant under the Award and the participant's holding
period and tax basis for the Award or underlying Common Stock.
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<PAGE> 18
Maximum Income Tax Rates on Capital Gain and Ordinary Income
Long-term capital gain will be taxable at a maximum rate of 20% if
attributable to Common Stock held for more than eighteen months and at a maximum
rate of 28% if attributable to Common Stock held for more than one year but not
more than eighteen months. Short-term capital gain and ordinary income will be
taxable at a maximum rate of 39.6%. Phaseouts of personal exemptions and
reductions of allowable itemized deductions at higher levels of income may
result in slightly higher marginal rates. Ordinary compensation income will also
be subject to a Medicare tax and, under certain circumstances, a social security
tax.
Tax Consequences to the Company
The grant of an Award under the 1998 Plan will have no tax consequences to
the Company. Moreover, in general, neither the exercise of an incentive stock
option nor the sale of any Common Stock acquired under the 1998 Plan will have
any tax consequences to the Company. The Company generally will be entitled to a
business-expense deduction, however, with respect to any ordinary compensation
income recognized by a participant under the 1998 Plan, including in connection
with a restricted stock Award or as a result of the exercise of a nonstatutory
stock option or a Disqualifying Disposition, or Section 83(b) Election. Any such
deduction will be subject to the limitations of Section 162(m) of the Code. The
Company will have a withholding obligation with respect to any ordinary
compensation income recognized by participants under the 1998 Plan who are
employees or otherwise subject to withholding in connection with a restricted
stock Award or the exercise of a nonstatutory stock option.
BOARD RECOMMENDATION
The Board of Directors believes that the approval and adoption of the 1998
Plan is in the best interests of the Company and its stockholders and therefore
recommends that the stockholders vote FOR the proposal.
APPROVAL OF AMENDMENTS TO THE 1993 DIRECTOR STOCK OPTION PLAN
The Director Plan was adopted by the Board of Directors of the Company in
June 1993 and approved by the Company's stockholders in August 1993. The Company
established the Director Plan to encourage ownership in the Company by outside
directors of the Company and to provide an incentive for such nonemployee
directors to remain on the Board of Directors. All options granted under the
Director Plan must have an exercise price equal to the fair market value of the
Common Stock on the date of the grant. Upon the occurrence of a change in
control of the Company, options granted under the Director Plan become
exercisable in full, whether or not then exercisable in accordance with their
terms. Options granted under the Director Plan terminate upon the earlier of
twelve months after the optionee ceases to serve on the Board of Directors or
ten years from the date of grant. All options granted under the Director Plan
are nonstatutory stock options which are not intended to meet the requirements
of Section 422 of the Code.
At its meeting on May 11, 1998, the Board of Directors amended the Director
Plan, subject to stockholder approval, to increase the number of shares of
Common Stock which may be issued under the Director Plan from 63,000 shares of
Common Stock to 313,000 shares of Common Stock and, commencing on January 1,
1999, to increase the number of shares granted pursuant to Initial Options and
Annual Options.
Currently, under the Director Plan, each director who is not an employee of
the Company receives upon his initial election an Initial Option to purchase
7,000 shares of Common Stock and Annual Options at the time of each annual
meeting of stockholders to purchase 2,500 shares of Common Stock. The exercise
price of Initial Options and Annual Options is equal to the fair market value of
the Company's Common Stock on the relevant date of grant. Initial Options become
exercisable in installments of 20% commencing on the grant date and the
subsequent four anniversaries of the grant date and Annual Options are
immediately exercisable.
The Director Plan is administered by the Board of Directors and the Board
may suspend or discontinue the Director Plan at any time. The Board may amend
the Director Plan once during any six-month period.
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<PAGE> 19
Amendments which would change the number of shares subject to the Director Plan,
change the designation of the class of directors eligible to receive options or
materially increase the benefits accruing to participants under the Director
Plan are subject to approval by the Company's stockholders.
BOARD RECOMMENDATION
The Board of Directors believes that the approval of the amendment to the
Director Plan is in the best interests of the Company and its stockholders and
therefore recommends that the stockholders vote FOR this proposal.
RATIFICATION OF SELECTION OF INDEPENDENT ACCOUNTANTS
The Board of Directors, at the recommendation of the Audit Committee, has
selected the firm of Coopers & Lybrand L.L.P. as the Company's independent
accountants for the current fiscal year. Coopers & Lybrand L.L.P. has served as
the Company's independent accountants since 1978. Although stockholder
ratification of the Board of Directors' selection of Coopers & Lybrand L.L.P. is
not required by law, the Board of Directors believes that it is advisable to
give stockholders the opportunity to ratify this selection. If this proposal is
not approved at the Annual Meeting, the Board of Directors will reconsider its
selection of Coopers & Lybrand L.L.P.
Representatives of Coopers & Lybrand L.L.P. are expected to be present at
the Annual Meeting. They will have the opportunity to make a statement if they
desire to do so and will also be available to respond to appropriate questions
from stockholders.
OTHER MATTERS
Management does not know of any other matters which may come before the
Annual Meeting. However, if any other matters are properly presented to the
Annual Meeting, it is the intention of the persons named in the accompanying
proxy to vote, or otherwise act, in accordance with their judgment on such
matters.
All costs of solicitation of proxies will be borne by the Company. In
addition to solicitations by mail, the Company's directors, officers and regular
employees, without additional remuneration, may solicit proxies by telephone,
telegraph and personal interviews, and the Company reserves the right to retain
outside agencies for the purpose of soliciting proxies. Brokers, custodians and
fiduciaries will be requested to forward proxy soliciting material to the owners
of shares held in their names and the Company will reimburse them for out-
of-pocket expenses incurred on behalf of the Company.
Proposals of stockholders intended to be presented at the 1999 Annual
Meeting of Stockholders must be received by the Company at its principal office
in Manchester, New Hampshire not later than February 17, 1999 for inclusion in
the proxy statement for that meeting.
By Order of the Board of Directors,
PAUL C. SEMPLE
Secretary
June 26, 1998
THE BOARD OF DIRECTORS HOPES THAT STOCKHOLDERS WILL ATTEND THE MEETING.
WHETHER OR NOT STOCKHOLDERS PLAN TO ATTEND, STOCKHOLDERS ARE URGED TO COMPLETE,
DATE, SIGN AND RETURN THE ENCLOSED PROXY IN THE ACCOMPANYING ENVELOPE.
STOCKHOLDERS WHO ATTEND THE MEETING MAY VOTE THEIR SHARES PERSONALLY EVEN THOUGH
THEY HAVE SENT IN THEIR PROXIES.
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<PAGE> 20
APPENDIX I
SUMMA FOUR, INC.
1998 STOCK INCENTIVE PLAN
1. PURPOSE
The purpose of this 1998 Stock Incentive Plan (the "Plan") of Summa
Four, Inc., a Delaware corporation (the "Company"), is to advance the interests
of the Company's stockholders by enhancing the Company's ability to attract,
retain and motivate persons who make (or are expected to make) important
contributions to the Company by providing such persons with equity ownership
opportunities and performance-based incentives and thereby better aligning the
interests of such persons with those of the Company's stockholders. Except where
the context otherwise requires, the term "Company" shall include any present or
future subsidiary corporations of Summa Four, Inc. as defined in Section 424(f)
of the Internal Revenue Code of 1986, as amended, and any regulations
promulgated thereunder (the "Code").
2. ELIGIBILITY
All of the Company's employees, officers, directors, consultants and
advisors are eligible to be granted options, restricted stock, or other
stock-based awards (each, an "Award") under the Plan. Any person who has been
granted an Award under the Plan shall be deemed a "Participant".
3. ADMINISTRATION, DELEGATION
(a) ADMINISTRATION BY BOARD OF DIRECTORS. The Plan will be
administered by the Board of Directors of the Company (the "Board"). The Board
shall have authority to grant Awards and to adopt, amend and repeal such
administrative rules, guidelines and practices relating to the Plan as it shall
deem advisable. The Board may correct any defect, supply any omission or
reconcile any inconsistency in the Plan or any Award in the manner and to the
extent it shall deem expedient to carry the Plan into effect and it shall be the
sole and final judge of such expediency. All decisions by the Board shall be
made in the Board's sole discretion and shall be final and binding on all
persons having or claiming any interest in the Plan or in any Award. No director
or person acting pursuant to the authority delegated by the Board shall be
liable for any action or determination relating to or under the Plan made in
good faith.
<PAGE> 21
(b) DELEGATION TO EXECUTIVE OFFICERS. To the extent permitted by
applicable law, the Board may delegate to one or more executive officers of the
Company the power to make Awards and exercise such other powers under the Plan
as the Board may determine, provided that the Board shall fix the maximum number
of shares subject to Awards and the maximum number of shares for any one
Participant to be made by such executive officers.
(c) APPOINTMENT OF COMMITTEES. To the extent permitted by
applicable law, the Board may delegate any or all of its powers under the Plan
to one or more committees or subcommittees of the Board (a "Committee"). During
the periods when the common stock, $.01 par value per share, of the Company (the
"Common Stock") is registered under the Securities Exchange Act of 1934 (the
"Exchange Act"), the Board may appoint one such Committee of not less than two
members, each member of which shall be an "outside director" within the meaning
of Section 162(m) of the Code and a "non-employee director" as defined in Rule
16b-3 promulgated under the Exchange Act." All references in the Plan to the
"Board" shall mean the Board or a Committee of the Board or the executive
officer referred to in Section 3(b) to the extent that the Board's powers or
authority under the Plan have been delegated to such Committee or executive
officer.
4. STOCK AVAILABLE FOR AWARDS
(a) NUMBER OF SHARES. Subject to adjustment under Section 4(c),
Awards may be made under the Plan for up to 750,000 shares of Common Stock
provided that Awards for no more than 100,000 shares of Common Stock (other than
options granted with an exercise price equal to 100% of fair market value) may
be issued in any one calendar year. If any Award expires or is terminated,
surrendered or canceled without having been fully exercised or is forfeited in
whole or in part or results in any Common Stock not being issued, the unused
Common Stock covered by such Award shall again be available for the grant of
Awards under the Plan, subject, however, in the case of Incentive Stock Options
(as hereinafter defined), to any limitation required under the Code. Shares
issued under the Plan may consist in whole or in part of authorized but unissued
shares or treasury shares.
(b) PER-PARTICIPANT LIMIT. Subject to adjustment under Section
4(c), the maximum number of shares with respect to which an Award may be granted
to any Participant under the Plan shall be 200,000 per calendar year. The
per-participant limit described in this Section 4(b) shall be construed and
applied consistently with Section 162(m) of the Code.
(c) ADJUSTMENT TO COMMON STOCK. In the event of any stock split,
stock dividend, recapitalization, reorganization, merger, consolidation,
combination, exchange of shares, liquidation, spin-off or other similar change
in capitalization or event, or any distribution to holders of Common Stock other
than a normal cash
-2-
<PAGE> 22
dividend, (i) the number and class of securities available under this Plan, (ii)
the number and class of security and exercise price per share subject to each
outstanding Option, (iii) the repurchase price per security subject to each
outstanding Restricted Stock Award, and (iv) the terms of each other outstanding
stock-based Award shall be appropriately adjusted by the Company (or substituted
Awards may be made, if applicable) to the extent the Board shall determine, in
good faith, that such an adjustment (or substitution) is necessary and
appropriate.
5. STOCK OPTIONS
(a) GENERAL. The Board may grant options to purchase Common Stock
(each, an "Option") and determine the number of shares of Common Stock to be
covered by each Option, the exercise price of each Option and the conditions and
limitations applicable to the exercise of each Option, including conditions
relating to applicable federal or state securities laws, as it considers
necessary or advisable. An Option which is not intended to be an Incentive Stock
Option (as hereinafter defined) shall be designated a "Nonstatutory Stock
Option".
(b) INCENTIVE STOCK OPTIONS. An Option that the Board intends to
be an "incentive stock option" as defined in Section 422 of the Code (an
"Incentive Stock Option") shall only be granted to employees of the Company and
shall be subject to and shall be construed consistently with the requirements of
Section 422 of the Code. The Company shall have no liability to a Participant,
or any other party, if an Option (or any part thereof) which is intended to be
an Incentive Stock Option is not an Incentive Stock Option.
(c) EXERCISE PRICE. The Board shall establish the exercise price
at the time each Option is granted and specify it in the applicable option
agreement.
(d) DURATION OF OPTIONS. Each Option shall be exercisable at such
times and subject to such terms and conditions as the Board may specify in the
applicable option agreement. No Option will be granted for a term in excess of
10 years.
(e) EXERCISE OF OPTION. Options may be exercised only by delivery
to the Company of a written notice of exercise signed by the proper person
together with payment in full as specified in Section 5(f) for the number of
shares for which the Option is exercised.
(f) PAYMENT UPON EXERCISE. Common Stock purchased upon the
exercise of an Option granted under the Plan shall be paid for as follows:
(1) in cash or by check, payable to the order of the
Company;
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<PAGE> 23
(2) except as the Board may otherwise provide in an
Option Agreement, by (i) delivery of an irrevocable and unconditional
undertaking by a creditworthy broker to deliver promptly to the Company
sufficient funds to pay the exercise price, (ii) delivery by the Participant to
the Company of a copy of irrevocable and unconditional instructions to a
creditworthy broker to deliver promptly to the Company cash or a check
sufficient to pay the exercise price, or (iii) delivery of shares of Common
Stock owned by the Participant valued at their fair market value as determined
by the Board in good faith ("Fair Market Value"), which Common Stock was owned
by the Participant at least six months prior to such delivery;
(3) to the extent permitted by the Board and explicitly
provided in an Option Agreement (i) by delivery of a promissory note of the
Participant to the Company on terms determined by the Board, or (ii) by payment
of such other lawful consideration as the Board may determine; or
(4) any combination of the above permitted forms of
payment.
6. RESTRICTED STOCK
(a) GRANTS. The Board may grant Awards entitling recipients to
acquire shares of Common Stock, subject to the right of the Company to
repurchase all or part of such shares at their issue price or other stated or
formula price (or to require forfeiture of such shares if issued at no cost)
from the recipient in the event that conditions specified by the Board in the
applicable Award are not satisfied prior to the end of the applicable
restriction period or periods established by the Board for such Award (each,
"Restricted Stock Award").
(b) TERMS AND CONDITIONS. The Board shall determine the terms and
conditions of any such Restricted Stock Award, including the conditions for
repurchase (or forfeiture) and the issue price, if any. Any stock certificates
issued in respect of a Restricted Stock Award shall be registered in the name of
the Participant and, unless otherwise determined by the Board, deposited by the
Participant, together with a stock power endorsed in blank, with the Company (or
its designee). At the expiration of the applicable restriction periods, the
Company (or such designee) shall deliver the certificates no longer subject to
such restrictions to the Participant or if the Participant has died, to the
beneficiary designated, in a manner determined by the Board, by a Participant to
receive amounts due or exercise rights of the Participant in the event of the
Participant's death (the "Designated Beneficiary"). In the absence of an
effective designation by a Participant, Designated Beneficiary shall mean the
Participant's estate.
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<PAGE> 24
7. OTHER STOCK-BASED AWARDS
The Board shall have the right to grant other Awards based upon the
Common Stock having such terms and conditions as the Board may determine,
including the grant of shares based upon certain conditions, the grant of
securities convertible into Common Stock and the grant of stock appreciation
rights.
8. GENERAL PROVISIONS APPLICABLE TO AWARDS
(a) TRANSFERABILITY OF AWARDS. Except as the Board may otherwise
determine or provide in an Award, Awards shall not be sold, assigned,
transferred, pledged or otherwise encumbered by the person to whom they are
granted, either voluntarily or by operation of law, except by will or the laws
of descent and distribution, and, during the life of the Participant, shall be
exercisable only by the Participant. References to a Participant, to the extent
relevant in the context, shall include references to authorized transferees.
(b) DOCUMENTATION. Each Award under the Plan shall be evidenced by
a written instrument in such form as the Board shall determine. Each Award may
contain terms and conditions in addition to those set forth in the Plan.
(c) BOARD DISCRETION. Except as otherwise provided by the Plan,
each type of Award may be made alone or in addition or in relation to any other
type of Award. The terms of each type of Award need not be identical, and the
Board need not treat Participants uniformly.
(d) TERMINATION OF STATUS. The Board shall determine the effect on
an Award of the disability, death, retirement, authorized leave of absence or
other change in the employment or other status of a Participant and the extent
to which, and the period during which, the Participant, the Participant's legal
representative, conservator, guardian or Designated Beneficiary may exercise
rights under the Award.
(e) CHANGE IN CONTROL EVENTS
(1) CONSEQUENCES OF CHANGE IN CONTROL EVENTS. Upon the
occurrence of a Change in Control Event (as defined below), or the execution by
the Company of any agreement with respect to a Change in Control Event, the
Board shall take any one or more of the following actions with respect to then
outstanding Awards: (i) provide that outstanding Options shall be assumed, or
equivalent Options shall be substituted, by the acquiring or succeeding
corporation (or an affiliate thereof), provided that any such Options
substituted for Incentive Stock Options shall satisfy, in the determination of
the Board, the requirements of Section 424(a) of the Code; (ii)
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<PAGE> 25
upon written notice to the Participants, provide that all then unexercised
Options will become exercisable in full as of a specified time (the
"Acceleration Time") prior to the Change in Control Event and will terminate
immediately prior to the consummation of such Change in Control Event, except to
the extent exercised by the Participants between the Acceleration Time and the
consummation of such Change in Control Event; (iii) in the event of an
Acquisition Event under the terms of which holders of Common Stock will receive
upon consummation thereof a cash payment for each share of Common Stock
surrendered pursuant to such Change in Control Event (the "Acquisition Price"),
provide that all outstanding Options shall terminate upon consummation of such
Change in Control Event and each Participant shall receive, in exchange
therefor, a cash payment equal to the amount (if any) by which (A) the
Acquisition Price multiplied by the number of shares of Common Stock subject to
such outstanding Options (whether or not then exercisable), exceeds (B) the
aggregate exercise price of such Options; (iv) provide that all Restricted Stock
Awards then outstanding shall become free of all restrictions prior to the
consummation of the Change in Control Event; and (v) provide that any other
stock-based Awards outstanding (A) shall become exercisable, realizable or
vested in full, or shall be free of all conditions or restrictions, as
applicable to each such Award, prior to the consummation of the Change in
Control Event, or (B), if applicable, shall be assumed, or equivalent Awards
shall be substituted, by the acquiring or succeeding corporation (or an
affiliate thereof).
A "Change in Control Event" shall occur or be deemed to have occurred
only if any of the following events occur: (i) any "person," as such term is
used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act") (other than the Company, any trustee or other
fiduciary holding securities under an employee benefit plan of the Company, or
any corporation owned directly or indirectly by the stockholders of the Company
in substantially the same proportion as their ownership of stock of the Company)
is or becomes the "beneficial owner" (as defined in Rule 13d-3 under the
Exchange Act), directly or indirectly, of securities of the Company representing
50% or more of the combined voting power of the Company's then outstanding
securities; (ii) individuals who, as of the date this Plan is adopted,
constitute the Board of Directors of the Company (as of the date thereof, the
"Incumbent Board") cease for any reason to constitute at least a majority of the
Board, provided that any person becoming a director subsequent to the date
thereof whose election, or nomination for election by the Company's
stockholders, was approved by a vote of at least a majority of the directors
then comprising the Incumbent Board (other than an election or nomination of an
individual whose initial assumption of office is in connection with an actual or
threatened election contest relating to the election of the directors of the
Company, as such terms are used in Rule 14a-11 of Regulation 14A under the
Exchange Act) shall be, for purposes of this Agreement, considered as though
such person were a member of the Incumbent Board; (iii) the stockholders of the
Company approve a merger or consolidation of the Company with any other
corporation, other than (A) a merger or consolidation which
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would result in the voting securities of the Company outstanding immediately
prior thereto continuing to represent (either by remaining outstanding or by
being converted into voting securities of the surviving entity) more than 50% of
the combined voting power of the voting securities of the Company or such
surviving entity outstanding immediately after such merger or consolidation or
(B) a merger or consolidation effected to implement a recapitalization of the
Company (or similar transaction) in which no "person" (as hereinabove defined)
acquires more than 30% of the combined voting power of the Company's then
outstanding securities; or (iv) the stockholders of the Company approve a plan
of complete liquidation of the Company or an agreement for the sale or
disposition by the Company of all or substantially all of the Company's assets.
(2) ASSUMPTION OF OPTIONS UPON CERTAIN EVENTS. The Board
may grant Awards under the Plan in substitution for stock and stock-based awards
held by employees of another corporation who become employees of the Company as
a result of a merger or consolidation of the employing corporation with the
Company or the acquisition by the Company of property or stock of the employing
corporation. The substitute Awards shall be granted on such terms and conditions
as the Board considers appropriate in the circumstances.
(f) WITHHOLDING. Each Participant shall pay to the Company, or
make provision satisfactory to the Board for payment of, any taxes required by
law to be withheld in connection with Awards to such Participant no later than
the date of the event creating the tax liability. The Board may allow
Participants to satisfy such tax obligations in whole or in part in shares of
Common Stock, including shares retained from the Award creating the tax
obligation, valued at their Fair Market Value. The Company may, to the extent
permitted by law, deduct any such tax obligations from any payment of any kind
otherwise due to a Participant.
(g) AMENDMENT OF AWARD. The Board may amend, modify or terminate
any outstanding Award, including but not limited to, substituting therefor
another Award of the same or a different type, changing the date of exercise or
realization, and converting an Incentive Stock Option to a Nonstatutory Stock
Option, provided that the Participant's consent to such action shall be required
unless the Board determines that the action, taking into account any related
action, would not materially and adversely affect the Participant.
(h) CONDITIONS ON DELIVERY OF STOCK. The Company will not be
obligated to deliver any shares of Common Stock pursuant to the Plan or to
remove restrictions from shares previously delivered under the Plan until (i)
all conditions of the Award have been met or removed to the satisfaction of the
Company, (ii) in the opinion of the Company's counsel, all other legal matters
in connection with the issuance and delivery of such shares have been satisfied,
including any applicable securities laws and any applicable stock exchange or
stock market rules and regulations, and (iii) the
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Participant has executed and delivered to the Company such representations or
agreements as the Company may consider appropriate to satisfy the requirements
of any applicable laws, rules or regulations.
(i) ACCELERATION. Notwithstanding any other provision of the Plan
and except as otherwise provided in the relevant option agreement, in the event
of a Change in Control Event, the exercise dates of all Options (or the vesting
of all Restricted Stock Awards or other stock based Awards, as the case may be)
granted to such Participant then outstanding shall be accelerated in full and
any restrictions on exercising outstanding Options or other Awards issued to
such Participant pursuant to the Plan shall terminate. Further, the Board may at
any time provide that any Options shall become immediately exercisable in full
or in part, that any Restricted Stock Awards shall be free of all restrictions
or that any other stock-based Awards may become exercisable in full or in part
or free of some or all restrictions or conditions, or otherwise realizable in
full or in part, as the case may be.
9. MISCELLANEOUS
(a) NO RIGHT TO EMPLOYMENT OR OTHER STATUS. No person shall have
any claim or right to be granted an Award, and the grant of an Award shall not
be construed as giving a Participant the right to continued employment or any
other relationship with the Company. The Company expressly reserves the right at
any time to dismiss or otherwise terminate its relationship with a Participant
free from any liability or claim under the Plan, except as expressly provided in
the applicable Award.
(b) NO RIGHTS AS STOCKHOLDER. Subject to the provisions of the
applicable Award, no Participant or Designated Beneficiary shall have any rights
as a stockholder with respect to any shares of Common Stock to be distributed
with respect to an Award until becoming the record holder of such shares.
(c) EFFECTIVE DATE AND TERM OF PLAN. The Plan shall become
effective on the date on which it is adopted by the Board, but no Award granted
to a Participant designated as subject to Section 162(m) by the Board shall
become exercisable, vested or realizable, as applicable to such Award, unless
and until the Plan has been approved by the Company's stockholders. No Awards
shall be granted under the Plan after the completion of ten years from the
earlier of (i) the date on which the Plan was adopted by the Board or (ii) the
date the Plan was approved by the Company's stockholders, but Awards previously
granted may extend beyond that date.
(d) AMENDMENT OF PLAN. The Board may amend, suspend or terminate
the Plan or any portion thereof at any time, provided that no Award granted to a
Participant designated as subject to Section 162(m) by the Board after the date
of such
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<PAGE> 28
amendment shall become exercisable, realizable or vested, as applicable to such
Award (to the extent that such amendment to the Plan was required to grant such
Award to a particular Participant), unless and until such amendment shall have
been approved by the Company's stockholders.
(e) STOCKHOLDER APPROVAL. For purposes of this Plan, stockholder
approval shall mean approval by a vote of the stockholders in accordance with
the requirements of Section 162(m) of the Code.
(f) GOVERNING LAW. The provisions of the Plan and all Awards made
hereunder shall be governed by and interpreted in accordance with the laws of
the State of Delaware, without regard to any applicable conflicts of law.
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APPENDIX II
SUMMA FOUR, INC.
AMENDED AND RESTATED
1993 DIRECTOR STOCK OPTION PLAN
1. PURPOSE
The purpose of this Amended and Restated 1993 Director Stock
Option Plan (the "Plan") of Summa Four, Inc. (the "Company") is to encourage
ownership in the Company by outside directors of the Company whose continued
services are considered essential to the Company's future progress and to
provide them with a further incentive to remain as directors of the Company.
2. ADMINISTRATION
The Board of Directors shall supervise and administer the
Plan. Grants of stock options under the Plan and the amount and nature of the
awards to be granted shall be automatic in accordance with Section 5. However,
all questions of interpretation of the Plan or of any options issued under it
shall be determined by the Board of Directors and such determination shall be
final and binding upon all persons having an interest in the Plan.
3. PARTICIPATION IN THE PLAN
Directors of the Company who are not employees of the Company
or any subsidiary of the Company shall be eligible to participate in the Plan.
4. STOCK SUBJECT TO THE PLAN
a. The maximum number of shares which may be issued
under the Plan shall be 313,000 shares of the Company's Common Stock, par value
$.01 per share ("Common Stock"), subject to adjustment as provided in Section 9
of the Plan. All share amounts set forth in this Plan reflect the 3.5-for-1
stock split approved by the Board of Directors on July 14, 1993.
b. If any outstanding option under the Plan for any
reason expires or is terminated without having been exercised in full, the
shares allocable to the unexercised portion of such option shall again become
available for grant pursuant to the Plan.
c. All options granted under the Plan shall be
nonstatutory options not entitled to special tax treatment under Section 422 of
the Internal Revenue Code of 1986, as amended to date and as it may be amended
from time to time (the "Code").
<PAGE> 30
5. TERMS, CONDITIONS AND FORM OF OPTIONS
Each option granted under the Plan shall be evidenced by a
written agreement in such form as the Board of Directors shall from time to time
approve, which agreements shall comply with and be subject to the following
terms and conditions:
a. OPTION GRANT DATES.
i. Upon the initial election of any eligible director as
a director of the Company, the Company shall grant to
such director an option to purchase 7,000 shares of
Common Stock (the "Initial Option"); provided that
commencing on January 1, 1999, the number of shares
of Common Stock to be granted pursuant to each
Initial Option granted thereafter shall equal 10,000
shares of Common Stock.
ii. On the date of each annual meeting of stockholders of
the Company, the Company shall grant to each eligible
director an option to purchase 2,500 shares of Common
Stock (the "Annual Option"); provided that commencing
on January 1, 1999, the number of shares of Common
Stock to be granted pursuant to each Annual Option
granted thereafter shall equal 5,000 shares of
Common Stock.
b. OPTION EXERCISE PRICE. The option exercise price per
share for each option granted under the Plan shall equal (i) the last reported
sales price per share of the Company's Common Stock on the NASDAQ National
Market System (or, if the Company is traded on a nationally recognized
securities exchange on the date of grant, the reported closing sales price per
share of the Company's Common Stock by such exchange) on the date of grant (or
if no such price is reported on such date such price as reported on the nearest
preceding day) or (ii) if the Common Stock is not traded on NASDAQ or an
exchange, the fair market value per share on the date of grant as determined by
the Board of Directors.
c. OPTIONS NON-TRANSFERABLE. Each option granted under
the Plan by its terms shall not be transferable by the optionee otherwise than
by will, or by the laws of descent and distribution, and shall be exercised
during the lifetime of the optionee only by him. No option or interest therein
may be transferred, assigned, pledged or hypothecated by the optionee during his
lifetime, whether by operation of law or otherwise, or be made subject to
execution, attachment or similar process.
d. EXERCISE PERIOD. Each Initial Option shall become
exercisable on a cumulative basis as to one-fifth of the shares subject to the
option on the date of grant of such option and each of the first, second, third
and fourth anniversaries of the date of grant. Each Annual Option shall be fully
exercisable on the date of grant. In the event an optionee ceases to serve as a
director, each such option may be exercised by the optionee (or, in the event of
his death, by his administrator, executor or heirs), at any time within 12
months after the optionee ceases to serve as a director, to the extent such
option was exercisable at the time of such cessation of
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<PAGE> 31
service. Notwithstanding the foregoing, no option shall be exercisable after the
expiration of ten years from the date of grant.
e. EXERCISE PROCEDURE. Options may be exercised only by
written notice to the Company at its principal office accompanied by (i) payment
in cash of the full consideration for the shares as to which they are exercised
or (ii) an irrevocable undertaking by a broker to deliver promptly to the
Company sufficient funds to pay the exercise price or delivery of irrevocable
instructions to a broker to deliver promptly to the Company cash or a check
sufficient to pay the exercise price.
6. ASSIGNMENTS
The rights and benefits of participants under the Plan may not
be assigned, whether voluntarily or by operation of law, except as provided in
Section 5(d).
7. EFFECTIVE DATE
The Plan shall become effective immediately upon its adoption
by the Board of Directors, but all grants of options shall be conditional upon
the approval of the Plan by the stockholders of the Company within 12 months
after adoption of the Plan by the Board of Directors.
8. LIMITATION OF RIGHTS
a. NO RIGHT TO CONTINUE AS A DIRECTOR. Neither the Plan,
nor the granting of an option nor any other action taken pursuant to the Plan,
shall constitute or be evidence of any agreement or understanding, express or
implied, that the Company will retain a director for any period of time.
b. NO STOCKHOLDERS' RIGHTS FOR OPTIONS. An optionee
shall have no rights as a stockholder with respect to the shares covered by his
options until the date of the issuance to him of a stock certificate therefor,
and no adjustment will be made for dividends or other rights (except as provided
in Section 9) for which the record date is prior to the date such certificate is
issued.
9. CHANGES IN COMMON STOCK
If the outstanding shares of Common Stock are increased,
decreased or exchanged for a different number or kind of shares or other
securities, or if additional shares or new or different shares or other
securities are distributed with respect to such shares of Common Stock or other
securities, through merger, consolidation, sale of all or substantially all of
the assets of the Company, reorganization, recapitalization, reclassification,
stock dividend, stock split, reverse stock split or
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<PAGE> 32
other distribution with respect to such shares of Common Stock, or other
securities, an appropriate and proportionate adjustment will be made in (i) the
maximum number and kind of shares reserved for issuance under the Plan, (ii) the
number and kind of shares or other securities subject to then outstanding
options under the Plan and (iii) the price for each share subject to any then
outstanding options under the Plan, without changing the aggregate purchase
price as to which such options remain exercisable. No fractional shares will be
issued under the Plan on account of any such adjustments.
10. CHANGE IN CONTROL
Notwithstanding any other provision to the contrary in this
Plan, in the event of a Change of Control (as defined below), all options
outstanding as of the date such Change in Control occurs shall become
exercisable in full, whether or not exercisable in accordance with their terms.
A "Change in Control" shall occur or be deemed to have occurred only if any of
the following events occur: (i) any "person," as such term is used in Sections
13(d) and 14(d) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act") (other than the Company, any trustee or other fiduciary holding
securities under an employee benefit plan of the Company, or any corporation
owned directly or indirectly by the stockholders of the Company in substantially
the same proportion as their ownership of stock of the Company) is or becomes
the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act),
directly or indirectly, of securities of the Company representing 50% or more of
the combined voting power of the Company's then outstanding securities; (ii)
individuals who, as of the date this Plan is adopted, constitute the Board of
Directors of the Company (as of the date thereof, the "Incumbent Board") cease
for any reason to constitute at least a majority of the Board, provided that any
person becoming a director subsequent to the date thereof whose election, or
nomination for election by the Company's stockholders, was approved by a vote of
at least a majority of the directors then comprising the Incumbent Board (other
than an election or nomination of an individual whose initial assumption of
office is in connection with an actual or threatened election contest relating
to the election of the directors of the Company, as such terms are used in Rule
14a-11 of Regulation 14A under the Exchange Act) shall be, for purposes of this
Agreement, considered as though such person were a member of the Incumbent
Board; (iii) the stockholders of the Company approve a merger or consolidation
of the Company with any other corporation, other than (A) a merger or
consolidation which would result in the voting securities of the Company
outstanding immediately prior thereto continuing to represent (either by
remaining outstanding or by being converted into voting securities of the
surviving entity) more than 50% of the combined voting power of the voting
securities of the Company or such surviving entity outstanding immediately after
such merger or consolidation or (B) a merger or consolidation effected to
implement a recapitalization of the Company (or similar transaction) in which no
"person" (as hereinabove defined) acquires more than 30% of the combined voting
power of the Company's then
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<PAGE> 33
outstanding securities; or (iv) the stockholders of the Company approve a plan
of complete liquidation of the Company or an agreement for the sale or
disposition by the Company of all or substantially all of the Company's assets.
11. AMENDMENT OF THE PLAN
The Board of Directors may suspend or discontinue the Plan or
review or amend it in any respect whatsoever; provided, however, that without
approval of the stockholders of the Company no revision or amendment shall
change the number of shares subject to the Plan (except as provided in Section
9), change the designation of the class of directors eligible to receive
options, or materially increase the benefits accruing to participants under the
Plan. The Plan may not be amended more than once in any six-month period.
12. NOTICE
Any written notice to the Company required by any of the
provisions of the Plan shall be addressed to the Treasurer of the Company and
shall become effective when it is received.
13. GOVERNING LAW
The Plan and all determinations made and actions taken
pursuant hereto shall be governed by the laws of the State of New Hampshire.
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<PAGE> 34
Adopted by the Board of Directors
on June 7, 1993.
Approved by the stockholders
on August 16, 1993.
Amended by the Board of Directors
on May 1, 1995.
Amendment approved by stockholders
on July 21, 1995.
Approved by the Board of Directors as
amended and restated on May 11, 1998.
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<PAGE> 35
SUMMA FOUR, INC.
ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD JULY 27, 1998
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS.
The undersigned hereby appoints each of Robert A. Degan, Barry R. Gorsun
and Jeffrey A. Weber with full power of substitution, to represent the
undersigned at the Annual Meeting of Stockholders of Summa Four, Inc., to be
held on July 27, 1998, and at any adjournments or postponements thereof, and to
vote at such meeting the shares of Common Stock, the undersigned would be
entitled to vote if present at such meeting, in accordance with the following
instructions. If no instructions are indicated, the shares represented by this
proxy will be voted for each of items 1 and 2 set forth on the reverse side of
this card.
The undersigned acknowledges receipt of the Notice of Annual Meeting and
the Proxy Statement together with this proxy.
PLEASE VOTE, DATE AND SIGN ON REVERSE AND RETURN PROMPTLY IN THE ENCLOSED
ENVELOPE.
Please sign exactly as your name(s) appear(s) on your stock certificate. Joint
owners should each sign personally. Trustees and other fiduciaries should
indicate the capacity in which they sign, and where more than one name appears,
a majority must sign. If a corporation, this signature should be that of an
authorized officer who should state his or her title.
HAS YOUR ADDRESS CHANGED? DO YOU HAVE ANY COMMENTS?
<PAGE> 36
|X| PLEASE MARK VOTES AS IN THIS EXAMPLE
(1) Election of Directors
|_| For
|_| Withhold
|_| For all Except
(1) Election of Directors:
EDGAR L. BROWN, JR.
ROBERT A. DEGAN
BARRY R. GORSUN
RUSSELL I. PILLAR
GORDON T. RAY
JOHN A. SHANE
INSTRUCTION: To withhold authority for any individual nominee, mark
the "For All Except" box and strike a line through the name(s) of the
nominee(s). Your shares will be voted for the remaining nominee(s).
(2) To approve and adopt the Company's 1998 Stock Incentive Plan.
(3) To approve amendments to the Company's 1993 Director Stock Option
Plan.
(4) To ratify the selection of Coopers & Lybrand L.L.P. by the Board of
Directors as the Company's independent accountants for the current
fiscal year.
For |_| Against |_| Abstain |_|
(5) To vote upon any other matters that may properly come before
the meeting according to their best judgment and in their
discretion.
Mark box at right if an address change or comment has
been noted on the reverse side of this card. |_|
Please be sure to sign and date this Proxy. Date: ___________________
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<PAGE> 37
______________________ _____________________
Stockholder sign here Co-owner sign here
DETACH CARD DETACH CARD
SUMMA FOUR, INC.
Dear Stockholder,
Please take note of the information enclosed with this Proxy Ballot.
Your vote counts, and you are strongly encouraged to exercise your
rights to vote your shares.
Please mark the boxes on this proxy card to indicate how your shares
will be voted. Then sign the card, detach it and return your proxy vote
in the enclosed postage paid envelope.
Your vote must be received prior to the Annual Meeting of Stockholders
to be held July 27, 1998.
Thank you in advance for your prompt consideration of these matters.
Sincerely,
Summa Four, Inc.
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