SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
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 [ ] Confidential, for Use of the
[X] Definitive Proxy Statement Commission Only (as permitted
[ ] Definitive Additional Materials by Rule 14a-6(e)(2))
[ ] Soliciting Material Pursuant to
Rule 14a-11(c) or Rule 14a-12
SOMERA COMMUNICATIONS, INC.
----------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
----------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
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 transactions applies:
(2) Aggregate number of securities to which transactions 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:
[SOMERA LOGO GRAPHIC OMITTED]
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NOTICE OF ANNUAL MEETING OF STOCKHOLDERS To Be Held May 21, 2003
------------
TO THE STOCKHOLDERS OF SOMERA COMMUNICATIONS, INC.:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of Somera
Communications, Inc., a Delaware corporation (the "Company"), will be held on
Wednesday, May 21, 2003, at 4:00 p.m., local time, at the Company's corporate
headquarters at 5383 Hollister Avenue, Santa Barbara, California, 93111 for the
following purposes:
1. To elect two (2) Class I directors to serve for the ensuing three
(3) years and until such director's successor is duly elected and
qualified.
2. To ratify the appointment of PricewaterhouseCoopers LLP as
independent accountants for the Company for the 2003 fiscal year.
3. To transact such other business as may properly come before the
meeting or any adjournment thereof.
The foregoing items of business are more fully described in the Proxy
Statement accompanying this Notice.
Only stockholders of record at the close of business on March 26, 2003 are
entitled to notice of and to vote at the meeting.
All stockholders are cordially invited to attend the meeting in person.
However, to ensure your representation at the meeting, please sign and return
the enclosed proxy as promptly as possible in the postage-prepaid envelope
enclosed for that purpose. Any stockholder attending the meeting may vote in
person even if he or she has returned a proxy.
FOR THE BOARD OF DIRECTORS
WARREN B. GRAYSON
Secretary
Santa Barbara, California
April 17, 2003
IMPORTANT: WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING, YOU ARE REQUESTED
TO COMPLETE AND PROMPTLY RETURN THE ENCLOSED PROXY IN THE ENVELOPE PROVIDED.
SOMERA COMMUNICATIONS, INC.
5383 Hollister Avenue
Santa Barbara, California 93111
(805) 681-3322
------------
PROXY STATEMENT FOR 2003
ANNUAL MEETING OF STOCKHOLDERS
------------
INFORMATION CONCERNING SOLICITATION AND VOTING
General
The enclosed Proxy is solicited on behalf of the Board of Directors of
Somera Communications, Inc. (the "Company") for use at the Annual Meeting of
Stockholders to be held May 21, 2003 at 4:00 p.m., local time, or at any
adjournment thereof, for the purposes set forth herein and in the accompanying
Notice of Annual Meeting of Stockholders. The Annual Meeting will be held at
the Company's corporate headquarters at 5383 Hollister Avenue, Santa Barbara,
California, 93111.
These proxy solicitation materials and the Company's Annual Report to
Stockholders for the year ended December 31, 2002, including financial
statements, were mailed on or about April 17, 2003 to all stockholders entitled
to vote at the meeting.
Record Date and Voting Securities
Stockholders of record at the close of business on March 26, 2003 (the
"Record Date") are entitled to notice of and to vote at the meeting. At the
Record Date, 49,097,103 shares of the Company's Common Stock, $0.001 par value,
were issued and outstanding.
Revocability of Proxies
Any proxy given pursuant to this solicitation may be revoked by the person
giving it at any time before its use by delivering to the Secretary of the
Company a written notice of revocation or a duly executed proxy bearing a later
date or by attending the meeting and voting in person.
Voting and Solicitation
Proxies properly executed, duly returned to the Company and not revoked,
will be voted in accordance with the specifications made. Where no
specifications are given, such proxies will be voted as the management of the
Company may propose. If any matter not described in this Proxy Statement is
properly presented for action at the meeting, the persons named in the enclosed
form of proxy will have discretionary authority to vote according to their best
judgment.
Each stockholder is entitled to one vote for each share of Common Stock on
all matters presented at the meeting. Stockholders do not have the right to
cumulative voting in the election of directors.
The cost of soliciting proxies will be borne by the Company. The Company
may also reimburse brokerage firms and other persons representing beneficial
owners of shares for their expenses in forwarding solicitation materials to
such beneficial owners. Proxies may also be solicited by certain of the
Company's directors, officers, and employees, without additional compensation,
personally or by telephone or telegram.
1
Quorum; Abstentions; Broker Non-Votes
The required quorum for the transaction of business at the Annual Meeting
is a majority of the votes eligible to be cast by holders of shares of Common
Stock issued and outstanding on the Record Date. Shares that are voted "FOR,"
"AGAINST," "WITHHELD" or "ABSTAIN" are treated as being present at the meeting
for purposes of establishing a quorum and are also treated as shares entitled
to vote at the Annual Meeting (the "Votes Cast") with respect to such matter.
Although there is no definitive statutory or case law authority in
Delaware as to the proper treatment of abstentions, the Company believes that
abstentions should be counted for purposes of determining both (i) the presence
or absence of a quorum for the transaction of business and (ii) the total
number of Votes Cast with respect to a proposal (other than the election of
directors). In the absence of controlling precedent to the contrary, the
Company intends to treat abstentions in this manner. Accordingly, abstentions
will have the same effect as a vote against the proposal.
The Delaware Supreme Court has held that, while broker non-votes should be
counted for purposes of determining the presence or absence of a quorum for the
transaction of business, broker non-votes should not be counted for purposes of
determining the number of Votes Cast with respect to the particular proposal on
which the broker has expressly not voted. The Company intends to treat broker
non-votes in a manner consistent with such holding. Thus, a broker non-vote
will not affect the outcome of the voting on a proposal.
Deadline For Receipt Of Stockholder Proposals
Proposals of stockholders of the Company which are intended to be
presented by such stockholders at the Company's 2004 Annual Meeting must be
received in proper form by the Secretary of the Company no later than February
21, 2004 to be considered for inclusion in the proxy statement and form of
proxy relating to that meeting.
2
PROPOSAL ONE:
ELECTION OF DIRECTORS
Nominees
Two (2) Class I directors are to be selected at the Annual Meeting of
Stockholders. Unless otherwise instructed, the proxy holders will vote the
proxies received by them for the Company's two (2) nominees named below, each
of whom is currently a director of the Company. If any nominee of the Company
is unable or declines to serve as a director at the time of the Annual Meeting,
the proxies will be voted for the substitute nominee designated by the present
Board of Directors to fill the vacancy. It is not expected that any nominee
will be unable or will decline to serve as a director. The term of office of
each person elected as a director at this meeting will continue until the
Annual Meeting of Stockholders held in 2006 or until the director's successor
has been elected and qualified.
Vote Required; Recommendation of Board of Directors
The two (2) candidates receiving the highest number of "FOR" votes shall
be elected to the Company's Board of Directors. An abstention will have the
same effect as a vote withheld for the election of directors, and pursuant to
Delaware law, a broker non-vote will not be treated as voting in person or by
proxy on the proposal.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS VOTE "FOR" EACH OF
THE NOMINEES LISTED BELOW:
Name of Nominee Age Principal Occupation
- ----------------------- ----- ---------------------------------------
Rick Darnaby .......... 51 President and Chief Executive Officer,
Somera Communications, Inc.
Peter Chung ........... 35 General Partner, Summit Partners, L.P.
Set forth below are each nominee's principal occupations during the past
five (5) years. There are no family relationships among any directors or
executive officers of the Company.
Rick Darnaby has served as our President and Chief Executive Officer since
joining Somera Communications in September 2001. Prior to joining Somera, Mr.
Darnaby was employed in a number of positions at Motorola, Inc. From December
1999 to April 2001, Mr. Darnaby served as Regional President, Senior Vice
President & General Manager--EMEA for the personal communications business,
from February 1998 to December 1999, Mr. Darnaby served as Senior Vice
President & General Manager, Consumer Solutions Group, and from November 1996
to January 1998, Mr. Darnaby served as Corporate Vice President & Director,
Global Brand Management for Motorola. From 1994 to 1996, Mr. Darnaby served as
President, and from 1991 to 1994 served as an executive in various capacities
for The Nutrasweet Group. From 1989 to 1991, Mr. Darnaby served as President &
Chief Executive Officer of Monsanto, Canada, Inc. Prior to 1989, Mr. Darnaby
served in various positions of management for Monsanto Company. Mr. Darnaby
holds a B.S. degree in business administration and an M.B.A. from Oklahoma
State University. Mr. Darnaby also holds an Advanced Management Degree in
International Business from I.N.S.E.A.D. (Institute of European Administration)
Fountainbleau, France.
Peter Y. Chung has served as a director of Somera Communications since
July 1998. Mr. Chung is a General Partner and Member of various entities
affiliated with Summit Partners, L.P., a private equity capital firm in Palo
Alto, California, where he has been employed since August 1994. Summit
Partners, L.P., and its affiliates manage a number of venture capital funds,
including Summit Ventures V, L.P., Summit V Advisors (QP) Fund, L.P., Summit V
Advisors Fund, L.P., and Summit Investors III, L.P. From August 1989 to July
1992, Mr. Chung worked in the Mergers and Acquisitions Department of Goldman,
Sachs & Co. Mr. Chung also serves as a director of Ditech Communications
Corporation, a developer of echo cancellation and optical networking equipment,
Sirenza Microdevices, Inc., a designer and supplier of high performance radio
frequency components for communications equipment and ADVA AG Optical
Networking, an optical networking systems company. Mr. Chung holds an A.B. from
Harvard University and an M.B.A. from Stanford University.
3
Directors Not Standing for Election
The members of the Board of Directors who are not standing for election at
this year's Annual Meeting are set forth below.
Class and Year in
Name Age Which Term Expires Principal Occupation
- -------------------------- ----- -------------------- ----------------------------------------
Barry Phelps ............. 55 Class II, 2004 Executive Vice President,
Spirent Communications,
a subsidiary of Spirent PLC
Gil Varon ................ 41 Class II, 2004 Director
Dan Firestone ............ 41 Class III, 2005 Director and President,
SDC Business Consulting
Walter Kortschak ......... 43 Class III, 2005 Managing Partner, Summit Partners, L.P.
Barry Phelps has served as a director of Somera Communications since July
1999. Mr. Phelps is Executive Vice President, Spirent Communications, a
subsidiary of Spirent PLC (following Spirent's acquisition of Netcom Systems)
and had been the Chief Operating Officer and President, Broadband Division,
since January 2000. Prior to that Mr. Phelps was President and Chief Executive
Officer of Netcom Systems, Inc., a network performance analysis company in
Calabasas, California, where he had been employed since November 1996. Before
he became President and Chief Executive Officer in November 1997, Mr. Phelps
served as the Vice President, Finance and Chief Financial Officer of Netcom
Systems. Prior to joining Netcom Systems, from February 1992 to November 1996,
Mr. Phelps served as Chairman and Chief Executive Officer of MICOM
Communications Corporation, a data communications equipment company which was
acquired by Nortel Networks in June 1996. Mr. Phelps holds a B.S. in
mathematics from St. Lawrence University and an M.B.A. from the University of
Rochester.
Gil Varon co-founded Somera Communications in July 1995, served as our
President from July 1995 until December 1998, Vice President, Wireline Division
from January 1999 to September 2002, and has served as one of our directors
since our inception. From May 1994 to June 1995, Mr. Varon served in sales and
procurement positions for Aurora Electronics, Inc. From 1985 until May 1994,
Mr. Varon served as a Group Sales Manager at Century Computer Marketing.
Dan Firestone co-founded Somera Communications in July 1995. He served as
Executive Chairman of the Board of Somera Communications, Inc. from September
2001 to January 2003. Mr. Firestone served as our Chief Executive Officer from
1996 until September 2001, served as our President from December 1998 until
September 2001, and has served as our Chairman of the Board since our
inception. From 1994 to the present, Mr. Firestone has also operated SDC
Business Consulting, a private business consulting firm. In 1984, Mr. Firestone
co-founded Century Computer Marketing, a distributor of computer service spare
parts and related products, and served as its Chief Executive Officer until May
1994.
Walter G. Kortschak has served as a director of Somera Communications
since July 1998. Mr. Kortschak is a Managing Partner and Managing Member of
various entities affiliated with Summit Partners, L.P., a private equity
capital firm in Palo Alto, California, where he has been employed since June
1989. Summit Partners, L.P., and its affiliates manage a number of venture
capital funds, including Summit Ventures V, L.P., Summit V Advisors (QP) Fund,
L.P., Summit V Advisors Fund, L.P., and Summit Investors III, L.P. Mr.
Kortschak holds a B.S. in engineering from Oregon State University, an M.S. in
engineering from The California Institute of Technology and an M.B.A. from the
University of California, Los Angeles.
Compensation of Directors
Except for reimbursement of reasonable expenses incurred in connection
with serving as a director and a grant of stock options upon commencement of
the initial term as director of the Company, our directors are not compensated
for their service as directors.
4
Board Meetings and Committees
Somera Communications held six board meetings during fiscal 2002. During
2002, each Board member attended 75% or more of the meetings held by the Board,
and each committee member attended 75% or more of the meetings held by the
committees on which he served.
The Audit Committee, which consists of Messrs. Chung, Phelps and
Kortschak, was formed in October 1999 and held five meetings during fiscal
2002. The Audit Committee reviews the financial statements and the internal
financial reporting system and controls of the Company with the Company's
management and independent auditors, recommends resolutions for any disputes
between the Company's management and its auditors, and reviews other matters
relating to the relationship of the Company with the auditors, including their
engagement and discharge.
The Compensation Committee, which consists of Messrs. Kortschak and
Phelps, was formed in October 1999 and held three meetings during fiscal 2002.
The Compensation Committee develops and monitors compensation arrangements for
the officers and directors of the Company, including preparation of proper
reports or other disclosure required by the Compensation Committee in
accordance with applicable proxy or other rules of the Securities and Exchange
Commission ("SEC") and monitors stock option activity for the Company.
5
PROPOSAL TWO:
RATIFICATION OF APPOINTMENT OF INDEPENDENT ACCOUNTANTS
The Board of Directors has selected PricewaterhouseCoopers LLP,
independent accountants, to audit the financial statements of the Company for
the 2003 fiscal year. This appointment is being presented to the stockholders
for ratification at the Annual Meeting. If the stockholders reject the
appointment, the Board will reconsider its selection. PricewaterhouseCoopers
LLP has audited the Company's financial statements since the Company's
inception. A representative of PricewaterhouseCoopers LLP is expected to be
present at the meeting, will have the opportunity to make a statement and is
expected to be available to respond to appropriate questions.
Fees billed to the Company by PricewaterhouseCoopers LLP during Fiscal 2002
Audit Fees:
Audit fees billed to the Company by PricewaterhouseCoopers LLP during the
Company's 2002 fiscal year for review of the Company's annual financial
statements and those financial statements included in the Company's quarterly
reports on Form 10-Q totaled $382,000.
Financial Information Systems Design and Implementation Fees:
The Company did not engage PricewaterhouseCoopers LLP to provide advice to
the Company regarding financial information systems design and implementation
during the fiscal year ended December 31, 2002.
All Other Fees:
Fees billed to the Company by PricewaterhouseCoopers LLP during the
Company's 2002 fiscal year for all other non-audit services rendered to the
Company, including tax related services and services related to financial due
diligence for the Company's acquisition of certain assets of Compass Telecom,
LLC totaled $361,000.
Vote Required; Recommendation of Board of Directors
The affirmative vote of a majority of the Votes Cast on the proposal at
the Annual Meeting is required to ratify the Board's appointment. An abstention
will have the same effect as a vote against the appointment of the independent
accountants, and, pursuant to Delaware law, a broker non-vote will not be
treated as voting in person or by proxy on the proposal.
THE BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED THE APPOINTMENT OF
PRICEWATERHOUSECOOPERS LLP AS THE COMPANY'S INDEPENDENT ACCOUNTANTS FOR FISCAL
YEAR 2003 AND RECOMMENDS THAT THE STOCKHOLDERS VOTE "FOR" PROPOSAL TWO.
6
Report of the Audit Committee of the Board of Directors
The Audit Committee of the Board of Directors is comprised of Messrs.
Chung, Kortschak, and Phelps. Each such member is a non-employee director, and
is "independent" as defined under the National Association of Securities
Dealers' current listing standards.
The primary responsibilities of the Audit Committee are to (1) review on a
continuing basis the internal financial reporting system and controls and audit
function of the Company, (2) review the independent accountants' proposed scope
and approach, (3) conduct a post-audit review of the financial statements and
audit findings, (4) review the performance and monitor the independent
accountants, and (5) recommend resolutions for any dispute between the
Company's management and its independent accountants.
The Audit Committee has reviewed and discussed the audited financial
statements of the Company for the fiscal year ended December 31, 2002 with the
Company's management. The Audit Committee has discussed with
PricewaterhouseCoopers LLP, the Company's independent public accountants, the
matters required to be discussed by Statement on Auditing Standards No. 61
("Communication with Audit Committees").
The Audit Committee has also received the written disclosures and the
letter from PricewaterhouseCoopers LLP required by Independence Standards Board
Standard No. 1 ("Independence Discussion with Audit Committees") and the Audit
Committee has discussed with PricewaterhouseCoopers LLP the independence of the
auditors from management and the Company, including the matters in the written
disclosures required by the Independence Standards Board and considered the
compatibility of non-audit services with the auditors' independence.
Based on the Audit Committee's review and discussions noted above, the
Audit Committee recommended to the Board of Directors that the Company's
audited financial statements be included in the Company's Annual Report on Form
10-K for the fiscal year ended December 31, 2002 for filing with the Securities
and Exchange Commission.
AUDIT COMMITTEE OF THE
BOARD OF DIRECTORS
Peter Y. Chung
Walter Kortschak
Barry Phelps
7
EXECUTIVE COMPENSATION
The following table sets forth certain information with respect to annual
compensation and long-term compensation awarded during the last three fiscal
years to the Company's Chief Executive Officer, former Executive Chairman and
the Company's four other most highly compensated executive officers
(collectively, the "Named Executive Officers").
Summary Compensation Table
Long Term
Annual Compensation Compensation Awards
---------------------------------------------- -----------------------------
Securities
Other Annual Underlying All Other
Name and Principal Position Year Salary Bonus Compensation Options Compensation(1)
- ------------------------------- --------------- ------------ ------------ -------------------- ------------ ----------------
Rick Darnaby .................. 2002 $ 456,730 $ 116,164 $ 202,889 (9) -- $ --
President and Chief 2001 (2) 138,542 116,164 70,487 (9) 2,747,000 --
Executive Officer
Dan Firestone ................. 2002 (3) $ 400,000 $ 0 $ 0 -- $ --
Executive Chairman 2001 360,000 205,000 10,857 600,000 --
of the Board 2000 345,000 720,000 4,673 -- --
Gil Varon ..................... 2002 (5) $ 133,333 $ 8,343 $ 333,339 (4) -- $ --
Director and Vice President, 2001 200,000 17,813 636,608 (4) -- $ --
Wireline Division 2000 108,333 0 1,599,482 (4) 60,000 --
Jeffrey G. Miller ............ 2002 (6) $ 250,000 $ 0 $ 447,505 (8) 50,000 $ --
Executive Vice President, 2001 250,000 104,500 79,744 (8) 100,000 --
Wireless 2000 229,744 325,000 88,011 (8) 90,000 --
Gary J. Owen .................. 2002 (7) $ 240,376 $ 33,811 $ 75,000 (10) 100,000 $ --
Chief Financial Officer 2001 225,000 137,500 107,623 (10) 100,000 --
2000 201,426 150,000 137,820 (10) 100,000 --
C. Stephen Cordial ............ 2002 (2) $ 76,586 $ 0 $ 0 150,000 $ --
Vice President,
Chief Financial Officer
Brandt A. Handley ............. 2002 (2) $ 205,480 $ 57,738 $ 0 240,000 $ --
Vice President, 2001 179,535 31,000 0 264,000 --
Chief Marketing Officer
- ------------
(1) Other compensation in the form of perquisites and other personal benefits
have been omitted in those cases where the aggregate amount of such
perquisites and other personal benefits constituted less than the lesser
of $50,000 or 10% of the total annual salary and bonus for the Named
Executive Officer.
(2) Mr. Darnaby joined Somera in September 2001; Mr. Cordial joined Somera in
August 2002 as Vice President, Chief Financial Officer; Mr. Handley joined
Somera in 2001 and was appointed Vice President and Chief Marketing
Officer in August 2002.
(3) Mr. Firestone served as President and Chief Executive Officer until
September 2001, when he assumed the role as Executive Chairman of the
Board and held that position until January 2003.
(4) Comprised primarily of sales commissions.
(5) Mr. Varon served as Vice President, Wireline Division until September
2002, when he left the employment of the Company.
(6) Mr. Miller was appointed Executive Vice President, Strategic Alliances in
July 2002 and became Executive Vice President, Wireless in January 2003.
(7) Mr. Owen served as Chief Financial Officer until August 2002, and as
Senior Vice President, EMEA from August 2002 to December 2002, when he
left the employment of the Company.
(8) Represents primarily imputed interest amounts relating to Mr. Miller's
employee loan and reimbursement for relocation expenses.
(9) Represents primarily imputed interest amounts relating to Mr. Darnaby's
employee loan and reimbursement for relocation expenses.
(10) Represents primarily imputed interest amounts relating to Mr. Owen's
employee loan and reimbursement for relocation expenses.
8
Option Grants and Exercises
The following table sets forth information regarding stock options granted
to the Named Executive Officers during fiscal year 2002. In accordance with the
rules of the SEC, also shown below is the potential realizable value over the
term of the option (the period from the grant date to the expiration date)
based on assumed rates of stock appreciation from the option exercise price of
0%, 5% and 10%, compounded annually. These amounts are based on certain assumed
rates of appreciation and do not represent the Company's estimate of future
stock price. Actual gains, if any, on stock option exercises will depend on the
future performance of the common stock.
Option Grants In Fiscal 2002
Individual Grants
--------------------------------------------------------
Number of Percent of
Potential Realizable Values at
Securities Total Options Assumed
Underlying Granted to Exercise Annual Rates of Stock Price
Appreciation for Option Term
Options Employees Price Per Expiration -------------------------------
Name and Principal Position Granted in 2002(1) Share(2) Date(3) 0% 5% 10%
- -------------------------------- ------------ --------------- ----------- ------------ ------- ---------- ----------
Rick Darnaby ................... -- -- -- -- $ -- $ -- $ --
Dan Firestone .................. -- -- -- -- -- -- --
Gil Varon ...................... -- -- -- -- -- -- --
Jeffrey G. Miller .............. 50,000 1% $ 7.70 2/05/2012 0 0 0
Gary J. Owen ................... 100,000 2% $ 7.70 2/05/2012 0 0 0
C. Stephen Cordial ............. 150,000 3% $ 2.73 8/08/2012 0 281,966 691,544
Brandt Handley ................. 75,000 1% $ 7.70 2/05/2012 0 0 0
65,000 1% $ 3.00 8/08/2012 0 104,635 282,119
100,000 2% $ 2.73 8/16/2012 0 187,977 461,029
- ------------
(1) Based on the aggregate of options to purchase 5,276,025 shares of common
stock granted to employees in 2002.
(2) Options were granted at an exercise price equal to the deemed fair market
value of the Company's common stock on the date of the grant, as
determined by the board.
(3) Twenty-five percent (25%) of the shares issuable upon exercise of options
granted under the Company's 1999 Stock Option Plan generally become vested
on the first anniversary of the vesting commencement date and the balance
generally vests at the rate of 1/36th of the shares for each month
thereafter. A portion of each of these options will accelerate upon a
change of control or termination of the optionee's employment. See
"--Employment Agreements" for further descriptions of these employee
benefits.
Options Exercises In The Last Fiscal Year
There were no exercises of stock options by any of the Named Executive
Officers during the year ended December 31, 2002.
Compensation Committee Interlocks and Insider Participation
The Compensation Committee of the Board of Directors currently consists of
Messrs. Kortschak and Phelps. None of the members of the Compensation Committee
was an officer or employee of the Company. No interlocking relationship exists
between any member of the Company's Compensation Committee and any member of
any other company's board of directors or compensation committee.
Employment Arrangements
Rick Darnaby. Mr. Darnaby entered into an employment agreement and
commenced his employment with the Company on September 17, 2001. Under the
agreement, we have agreed to pay Mr. Darnaby an annual salary of $475,000 and a
bonus of up to $400,000 based on the achievement of company performance
milestones. Under this agreement, Mr. Darnaby did not receive a bonus in 2002.
Pursuant to the agreement, Mr. Darnaby was granted a stock option to purchase
1,923,000 shares of
9
Company common stock with a per share exercise price equal to the fair market
value of the Company's common stock at the date of grant (the "First Stock
Option"). The First Stock Option is for a term of ten years and 25% of the
shares subject to the stock option will vest after one year and one
forty-eighth of the shares will vest each month thereafter at the end of the
month, so as to be 100% vested by the end of the four year anniversary of
employment commencement. Mr. Darnaby was also granted an additional stock
option to purchase 824,000 shares of the Company's common stock with a per
share exercise price equal to the fair market value of the Company's common
stock at the date of grant (the "Second Stock Option"). The Second Stock Option
is for a term of ten years and will vest based on the achievement of
performance milestones.
As a part of his employment agreement, we provided Mr. Darnaby with an
interest-free mortgage loan in May 2002 for the purpose of Mr. Darnaby
acquiring a new home. Under the terms of the agreement, the loan amount will be
forgiven over eight years. In the event that Mr. Darnaby is terminated without
cause by us, he would be entitled to receive severance payments in an amount of
up to twelve months of his base salary and target bonus. In addition, he would
be entitled to receive additional vesting of that number of shares subject to
his First Stock Option (and any other stock options subsequently granted to Mr.
Darnaby, not including the Second Stock Option) that would have become vested
had Mr. Darnaby remained employed by us for an additional twelve months. In the
event that Mr. Darnaby's employment is terminated within twelve months
following a change of control of Somera, 100% of the shares subject to Mr.
Darnaby's First Stock Option will vest and become immediately exercisable.
Jeffrey G. Miller. Mr. Miller entered into an employment agreement and
commenced his employment with the Company on May 6, 1999. The Company and Mr.
Miller entered into an amendment to the Employee Agreement in July 2002. Under
the amended agreement, the Company agreed to pay Mr. Miller an annual salary of
$250,000 and incentive compensation based on achievement of agreed upon
milestones. The maximum amount of annual incentive compensation would be
$460,000. Additionally, Mr. Miller relocated to Chicago, Illinois and the
Company agreed to provide Mr. Miller with a $55,000 relocation allowance.
As a part of the original employment agreement, the Company had provided
Mr. Miller with an interest-free mortgage loan in the amount of $600,000 for
the purpose of Mr. Miller acquiring a new home in Santa Barbara, California. In
August 2002, Mr. Miller repaid the outstanding balance of the loan in full.
Dan Firestone. Mr. Firestone entered into an employment agreement and
commenced his position as Executive Chairman of the Board of the Company on
September 17, 2001. Under the agreement, we agreed to pay Mr. Firestone an
annual salary of $400,000 and a bonus of up to $200,000 based on the
achievement of performance milestones. Pursuant to this agreement, Mr.
Firestone was granted a stock option to purchase 500,000 shares of Company
common stock with a per share exercise price equal to the fair market value of
the Company's common stock at the date of grant. The stock option is for a term
of ten years and 25% of the shares subject to the stock option will vest after
one year and one forty-eighth of the shares will vest each month thereafter at
the end of the month, so as to be 100% vested by the end of the four year
anniversary of employment.
Mr. Firestone and the Company entered into an Employment Termination
Agreement whereby Mr. Firestone's employment terminated as of January 1, 2003
and the Company agreed to pay Mr. Firestone $300,000. The Board of Directors
also agreed to amend the Stock Option grants previously made to Mr. Firestone
to extend the period during which Mr. Firestone may exercise vested option
grants for a period of 3 years from his Termination Date. Additionally, the
Board agreed to accelerate the vesting of outstanding stock options by 12
months.
Report of the Compensation Committee of the Board of Directors
The Compensation Committee (the "Committee") consists of Messrs. Kortschak
and Phelps. The Committee recommends, subject to the Board's approval,
compensation for executive officers and evaluates performance of management.
10
Compensation Philosophy
The Company operates in the competitive and rapidly changing environment
of high technology businesses. The Committee seeks to establish compensation
policies that allow the Company flexibility to respond to changes in its
business environment. The Company's compensation philosophy is based on the
belief that achievement in this environment is enhanced by the coordinated
efforts of all individuals working toward common objectives. The goals of the
Company's compensation program are to align compensation with the Company's
business objectives and performance, to foster teamwork and to enable the
Company to attract, retain and reward employees who contribute to the Company's
long-term success.
Compensation Components
The Company's executive officers are compensated with a salary, and are
eligible for bonus and stock option awards. The Committee assesses the past
performance and anticipated future contribution, and considers the total
compensation (earned or potentially available) of each executive officer in
establishing each element of compensation.
Salary. The salaries of the executive officers, including the Chief
Executive Officer, are determined annually by the Committee with reference to
several surveys of salaries paid to executive with similar responsibilities at
comparable companies, generally in the high technology industry. The peer group
for each executive officer is composed of executives whose responsibilities are
similar in scope and content. The Company seeks to set executive compensation
levels that are competitive with the average levels of peer group compensation.
Bonus. Each year the Company establishes an Executive Incentive
Compensation Plan. Awards under the plan are tied to the financial performance
or the Company as a whole and, for certain executives, the financial
performance of a division or geographic region.
Stock Options. Stock options awards are designed to align the interests of
executives with the long-term interests of the stockholders. The Committee
approves option grants subject to vesting periods (usually 36 months) to retain
executives and encourage sustained contributions. The exercise price of options
are not less than the closing market price of the common stock on the date of
grant. These options will acquire value only to the extent that the price of
the Company's Common Stock increases relative to the market price at the date
of grant.
Chief Executive Officer's Compensation
Mr. Darnaby's compensation for 2002 was determined by the Compensation
Committee based on their assessment of the current market and compensation for
an executive of his level of experience and expertise, with consideration for
his past performance and anticipated future contribution.
COMPENSATION COMMITTEE OF THE
BOARD OF DIRECTORS
Walter Kortschak
Barry Phelps
11
STOCK PERFORMANCE GRAPH
Stockholder Return Comparison
The graph below compares the cumulative total return on the Company's
Common Stock for the period commencing November 12, 1999 and ending December
31, 2002 compared to the NASDAQ Composite Index and NASDAQ Telecommunications
Index. The graph assumes that $100 was invested on the date of the Company's
initial public offering, November 12, 1999. Historic stock price performance
should not be considered indicative of future stock price performance.
Comparison of Cumulative Total Return Among Somera Communications, Inc.,
The NASDAQ Composite Index, and NASDAQ Telecommunications Index
[The following table was depicted as a line graph in the printed material.]
NASDAQ NASDAQ
Composite Telecommunications
Measurement Period Somera Index Index
- -------------------- -------- ----------- -------------------
11/12/99 ........... 100 100 100
12/31/99 ........... 103 126 122
3/31/00 ............ 101 142 132
6/30/00 ............ 114 123 105
9/30/00 ............ 79 114 88
12/31/00 ........... 72 77 56
3/31/01 ............ 38 57 39
6/30/01 ............ 60 67 37
9/30/01 ............ 36 47 24
12/31/01 ........... 63 61 28
3/31/02 ............ 61 57 21
6/30/02 ............ 60 45 12
9/30/02 ............ 17 36 11
12/31/02 ........... 23 41 13
12
Security Ownership of Certain Beneficial Owners and Management
The following table sets forth certain information known to the Company
with respect to beneficial ownership of the Company's Common Stock as of March
26, 2003 by (i) each beneficial owner of more than 5% of the Company's Common
Stock, (ii) each director and each nominee, (iii) each Named Executive Officer
and (iv) all directors and executive officers as a group. Except as otherwise
indicated, each person has sole voting and investment power with respect to all
shares shown as beneficially owned, subject to community property laws where
applicable. The information in the following table regarding the beneficial
owners of more than 5% of the Company's Common Stock is based upon information
supplied by principal stockholders or Schedule 13D and 13G filed with the
Securities and Exchange Commission.
Beneficial ownership is determined under the rules of the Securities and
Exchange Commission and generally includes voting or investment power with
respect to shares. Unless otherwise indicated below, to our knowledge, the
persons and entities named in the table have sole voting and sole investment
power with respect to all shares beneficially owned, subject to community
property laws where applicable. Shares of common stock subject to options that
are currently exercisable or exercisable within 60 days of March 26, 2003 are
deemed to be outstanding and to be beneficially owned by the person holding the
options for the purpose of computing the percentage ownership of that person,
but are not treated as outstanding for the purpose of computing the percentage
ownership of any other person. Unless otherwise indicated, the address for each
listed stockholder is c/o Somera Communications, Inc., 5383 Hollister Avenue,
Santa Barbara, California 93111.
The applicable percentage of ownership for each stockholder is based on
49,097,103 shares of common stock outstanding as of March 26, 2003, together
with applicable options for that stockholder.
Vested Common Stock and Percentage
Name of Beneficial Owner Common Stock Options(1) Vested Options of Total
- ----------------------------------------------- -------------- ------------ ------------------ -----------
Dan Firestone(2) .............................. 7,053,762 526,563 7,580,325 14.2%
Rick Darnaby .................................. 0 721,125 721,125 1.4%
Jeffrey G. Miller ............................. 9,887 808,400 818,287 1.6%
Gary J. Owen .................................. 1,581 562,918 564,499 1.1%
Gil Varon ..................................... 8,107,007 0 8,107,007 16.5%
C. Stephen Cordial ............................ 10,000 0 10,000 *
Brandt Handley ................................ 0 196,251 196,251 *
Walter G. Kortschak(4) ........................ -- -- -- --
c/o Summit Partners
499 Hamilton Avenue, Suite 200
Palo Alto, CA 94301
Peter Y. Chung(5) ............................. -- -- -- --
c/o Summit Partners
499 Hamilton Avenue, Suite 200
Palo Alto, CA 94301
Barry Phelps(6) ............................... 314 83,333 83,647 *
Summit Funds(7) ............................... 12,082,333 -- 12,082,333 24.6%
c/o Summit Partners
499 Hamilton Avenue, Suite 200
Palo Alto, CA 94301
Royce and Associates .......................... 5,679,300 -- 5,629,300 11.5%
1414 Avenue of the Americas
New York, NY 10119
FMR ........................................... 3,016,797 -- 3,016,797 6.1%
82 Devonshire Street
Boston, MA 02109
All executive officers and directors as a group
(10 persons) ................................ 15,182,551 2,898,590 18,081,141 34.8%
- ------------
* Represents beneficial ownership of less than 1%
13
(1) Represents shares issuable upon exercise of options to purchase Somera
Common Stock that are exercisable within 60 days of March 26, 2003.
(2) Consists of 6,978,762 shares of common stock owned by the Daniel Firestone
Living Trust. Mr. Firestone has voting and dispositive power with respect
to the shares held by the Daniel Firestone Living Trust. Also consists of
75,000 shares of common stock owned by the Daniel Firestone Trust.
(3) Consists of 10,000 shares of common stock owned by Cordial Family Trust.
Mr. Cordial has voting and dispositive power with respect to shares held
by the Cordial Family Trust
(4) Mr. Kortschak, one of our directors, is a managing member of Summit
Partners, LLC, which is the general partner of Summit Partners, V, which
is the general partner of each of Summit Ventures V, Summit V Advisors
Fund (QP), and Summit V Advisors Fund. Mr. Kortschak is also a general
partner of Summit Investors III. Summit Partners, LLC, through an
investment committee, has voting and dispositive power with respect to the
shares owned by the Summit funds. Mr. Kortschak does not have voting or
dispositive power with respect to the shares owned by the Summit funds and
disclaims beneficial ownership of these shares.
(5) Mr. Chung, one of our directors, is a member of Summit Partners, LLC, which
is the general partner of Summit Partners V, which is the general partner
of each of Summit Ventures V, Summit V Advisors Fund (QP), and Summit V
Advisors Fund. Summit Partners, LLC, through an investment committee, has
voting and dispositive power with respect to the shares owned by the
Summit funds. Mr. Chung does not have voting or dispositive power with
respect to the shares owned by the Summit funds and disclaims beneficial
ownership of these sales.
(6) Consists of shares held by The Phelps Family Trust over which Mr. Phelps
has voting and dispositive power.
(7) Consists of 11,082,581 shares of common stock owned by Summit Ventures V,
635,075 shares of common stock owned by Summit V Advisors Fund (QP),
194,075 shares of common stock owned by Summit V Advisors Fund, and
170,602 shares of common stock owned by Summit Investors III.
CERTAIN TRANSACTIONS
Darnaby Loan Agreement
As a part of his employment agreement, we provided Mr. Darnaby with an
interest-free mortgage loan in May 2002 for the purpose of Mr. Darnaby
acquiring a new home. Under the terms of the loan agreement, the loan amount
will be forgiven over eight years. In the event that Mr. Darnaby is terminated
without cause by us, he would be entitled to receive severance payments in an
amount of up to twelve months of his base salary and target bonus. In addition,
he would be entitled to receive additional vesting of that number of shares
subject to his First Stock Option (and any other stock options subsequently
granted to Mr. Darnaby, not including the Second Stock Option) that would have
become vested had Mr. Darnaby remained employed by us for an additional twelve
months. In the event that Mr. Darnaby's employment is terminated within twelve
months following a change of control of Somera, 100% of the shares subject to
Mr. Darnaby's First Stock Option will vest and become immediately exercisable.
As of December 31, the outstanding amount under Mr. Darnaby's loan is
$1,866,667.
Miller Loan Agreement
The Company had previously provided Jeffrey G. Miller, our executive vice
president, with a $600,000 interest-free mortgage loan. This loan was made in
conjunction with his employment agreement dated May 6, 1999 to assist with Mr.
Miller's relocation to the Santa Barbara, California area and his purchase of a
home. Pursuant to the terms of the loan agreement $150,000 was forgiven under
the terms of this loan, and as of August 2002 the outstanding amount was paid
in full.
Owen Loan Agreement
The Company had previously provided Gary Owen, our former chief financial
officer, with a $1.4 million six-month interest-free mortgage loan. This loan
was made in conjunction with his employment agreement dated July 16, 1999 to
assist with Mr. Owen's relocation to the Santa Barbara, California area and his
purchase of a home. As a part of his employment relationship, $300,000 of the
loan was agreed to be forgiven by our Board of Directors in February 2000.
Pursuant to the terms of the Agreement, during fiscal 2001, $25,000 was
forgiven on this loan. In June 2000, Mr. Owen repaid $425,000 of the principal
balance of this loan. In September 2000, the Company provided an additional
loan of $300,000 to Mr. Owen. This new loan was also interest-free and
repayable in October 2003. The due date of the
14
remaining amount of the original loan, excluding the new loan and the amounts
to be forgiven, was extended to October 19, 2003. Mr. Owen left the employment
of the Company in December 2002 and the loans were repaid upon the sale of his
residence and the execution of his separation agreement with the Company.
Berger Loan Agreement
The Company had previously provided Glenn Berger, our former vice
president of operations through September 2002 when he left the employment of
the Company, with a $300,000 interest-free mortgage loan. This loan was made in
conjunction with his employment agreement dated October 8, 1999 to assist with
Mr. Berger's relocation to the Santa Barbara, California area and his purchase
of a home. Pursuant to the terms of the Agreement, $22,500 has been forgiven on
this loan, and as of December 31, 2002, $277,500 was outstanding on this loan.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act") requires the Company's executive officers and directors and
persons who own more than ten percent (10%) of a registered class of the
Company's equity securities to file an initial report of ownership on Form 3
and changes in ownership on Form 4 or 5 with the SEC and the National
Association of Securities Dealers, Inc. Executive officers, directors and
greater than ten percent stockholders are also required by SEC rules to furnish
the Company with copies of all Section 16(a) forms they file. Based solely on
its review of the copies of such forms received by it, or written
representations from certain reporting persons, the Company believes that, with
respect to fiscal 2002, all filing requirements applicable to its officers,
directors and ten percent stockholders were satisfied, except as follows: C.
Stephen Cordial's filing of his initial Form 3 was untimely.
OTHER MATTERS
The Company knows of no other matters to be submitted at the meeting. If
any other matters properly come before the meeting, it is the intention of the
persons named in the enclosed proxy card to vote the shares they represent as
the Board of Directors of the Company may recommend.
THE BOARD OF DIRECTORS
Santa Barbara, California
April 17, 2003
15
APPENDIX A
PROXY SOMERA COMMUNICATIONS INC. PROXY
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Rick Darnaby and Stephen Cordial, jointly
and severally, proxies, with full power of substitution, to vote all shares of
Common Stock of Somera Communications, Inc., a Delaware corporation, which the
undersigned is entitled to vote at the Annual Meeting of Stockholders to be
held at the corporate offices of Somera Communications, Inc., 5383 Hollister
Avenue, Santa Barbara, California, on May 21, 2003, at 4:00 p.m., local time,
or any adjournment thereof and to vote all shares of common stock which the
undersigned would be entitled to vote thereat if then and there personally
present, on the matters set forth below:
(Continued, and to be signed on the other side)
Please mark [ X ]
your votes
as indicated in
this example
WITHHOLD
FOR FOR ALL
1. Proposal to elect the following
nominees as members of our [ ] [ ]
board of directors:
Rick Darnaby
Peter Y. Chung
INSTRUCTION: If you wish to withhold authority to
vote for any individual nominee,
strike a line through such nominee's
name above.
- ----------------------------------------------------
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
2. Proposal to ratify the appointment of
PricewaterhouseCoopers LLP as independent public
accountants for the 2003 fiscal year.
3. In their discretion, the proxies are authorized
to vote upon such other matters(s) which may
properly come before the annual meeting, or at
any adjournment(s) or postponement(s) thereof.
THIS PROXY WILL BE VOTED AS DIRECTED AND, IF NO DIRECTION IS INDICATED, THIS
PROXY WILL BE VOTED FOR THE LISTED NOMINEES FOR ELECTION AS DIRECTORS, AND TO
RATIFY THE APPOINTMENT OF PRICEWATERHOUSECOOPERS LLP AS INDEPENDENT PUBLIC
ACCOUNTANTS FOR OUR FISCAL YEAR ENDING DECEMBER , 2003.
Both of the foregoing attorneys-in-fact or their substitutes or, if only one
shall be present and acting at the annual meeting or any adjournment(s) or
postponement(s) thereof, the attorney-in-fact so present, shall have and may
exercise all of the powers of said attorney-in-fact hereunder.
Signature(s)____________________________________________ Dated __________, 2003
Signature(s)____________________________________________ Dated __________, 2003
NOTE: THIS PROXY SHOULD BE MARKED, DATED AND SIGNED BY THE STOCKHOLDER EXACTLY
AS HIS, HER OR ITS NAME APPEARS HEREON. PERSONS SIGNING IN A FIDUCIARY CAPACITY
SHOULD SO INDICATE AND IF SHARES ARE HELD BY JOINT TENANTS OR AS COMMUNITY
PROPERTY, BOTH SHOULD SIGN.