<PAGE>
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 Commission Only (as permitted by Rule
14a-6(e)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Section240.14a-11(c) or
Section240.14a-12
LARSCOM INCORPORATED
- --------------------------------------------------------------------------------
(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)(1)
and 0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(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.:
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(3) Filing Party:
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(4) Date Filed:
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<PAGE>
D
LARSCOM INCORPORATED
----------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD MAY 20, 1999
------------------------
TO THE STOCKHOLDERS OF LARSCOM INCORPORATED:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of LARSCOM
INCORPORATED, a Delaware corporation (the "Company") will be held at 10:00 a.m.,
local time, on Thursday, May 20, 1999, at The Sheraton San Jose, Almaden Room,
1801 Barber Lane, Milpitas, California 95035, for the following purposes:
1. To elect six (6) directors of the Company to serve for the ensuing year
and until their successors are duly elected and qualified.
2. To ratify the appointment of PricewaterhouseCoopers LLP as independent
accountants of the Company for the year ending December 31, 1999.
3. To transact such other business as may properly come before the meeting
or any postponements or adjournments 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 April 5, 1999 are entitled to notice of and to vote at the Annual
Meeting.
All stockholders are cordially invited to attend the Annual Meeting in
person. However, to ensure your representation at the meeting, you are urged to
mark, sign, date and return the enclosed proxy card as promptly as possible in
the postage prepaid envelope enclosed for that purpose. You may revoke your
proxy in the manner described in the accompanying proxy statement at any time
before it has been voted at the annual meeting. Any stockholder attending the
Annual Meeting may vote in person even if he or she has returned a proxy.
By Order of the Board of Directors,
/s/ BRUCE D. HORN
Bruce D. Horn
SECRETARY
Milpitas, California
April 20, 1999
YOUR VOTE IS VERY IMPORTANT, REGARDLESS OF THE NUMBER OF SHARES YOU OWN. PLEASE
READ THE ATTACHED PROXY STATEMENT CAREFULLY, AND COMPLETE, SIGN AND DATE THE
ENCLOSED PROXY CARD AS PROMPTLY AS POSSIBLE AND RETURN IT IN THE POSTAGE PREPAID
ENVELOPE.
<PAGE>
LARSCOM INCORPORATED
1845 MCCANDLESS DRIVE
MILPITAS, CA 95035
408-941-4000
------------------------
PROXY STATEMENT FOR THE 1999
ANNUAL MEETING OF STOCKHOLDERS
---------------------
INFORMATION CONCERNING SOLICITATION AND VOTING
GENERAL
The enclosed Proxy is solicited on behalf of the Board of Directors of
LARSCOM INCORPORATED (the "Company") for use at the Annual Meeting of
Stockholders to be held at 10:00 a.m. on Thursday, May 20, 1999, local time, or
at any adjournment or postponement 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 Sheraton San Jose, Almaden Room, 1801 Barber Lane,
Milpitas, California 95035. The telephone number at that location is (408)
943-0600. When proxies are properly dated, executed and returned, the shares
they represent will be voted at the meeting in accordance with the instructions
of the stockholder. If no specific instructions are given, the shares will be
voted for each of the proposals set forth herein and at the discretion of the
proxy holders upon such other business as may properly come before the Annual
Meeting or any adjournment or postponement thereof.
These proxy solicitation materials and the Company's Annual Report to
Stockholders for the year ended December 31, 1998, including financial
statements, were first mailed on or about April 20, 1999 to all stockholders
entitled to vote at the meeting.
RECORD DATE AND VOTING SECURITIES
Stockholders of record at the close of business on April 5, 1999, (the
"Record Date") are entitled to notice of and to vote at the Annual Meeting. At
the Record Date, 8,313,000, shares of the Company's Class A Common Stock, $.01
par value, were issued and outstanding and 10,000,000 shares of the Company's
Class B Common Stock, $.01 par value, were issued and outstanding. No shares of
the Company's preferred stock were outstanding.
REVOCABILITY OF PROXIES
Any proxy given pursuant to this solicitation may be revoked by the person
giving it at any time before it is voted. Proxies may be revoked by (i) filing
with the Secretary of the Company at or before the taking of the vote at the
Annual Meeting a written notice of revocation bearing a later date than the
proxy, (ii) duly executing a later dated proxy relating to the same shares and
delivering it to the Secretary of the Company at or before the taking of the
vote at the Annual Meeting or (iii) attending the Annual Meeting and voting in
person (although attendance at the Annual Meeting will not in and of itself
constitute a revocation of a proxy). Any written notice of revocation or
subsequent proxy should be delivered to Larscom Incorporated at 1845 McCandless
Drive, Milpitas, California 95035, Attention: Secretary, or hand-delivered to
the Secretary of the Company at or before the taking of the vote at the Annual
Meeting.
<PAGE>
VOTING AND SOLICITATION
Except with respect to certain matters as to which Delaware law requires
each class to vote as a separate class, the holders of Class A Common Stock and
Class B Common Stock vote as a single class on all matters, with each share of
Class A Common Stock entitled to one vote per share and each share of Class B
Common Stock entitled to four votes per share. Stockholders do not have the
right to cumulative voting at the meeting.
The cost of soliciting proxies will be borne by the Company. Arrangements
have been made with custodians, nominees and fiduciaries for the forwarding of
proxy solicitation materials to beneficial owners of shares held of record by
such custodians, nominees and fiduciaries. The Company will reimburse such
custodians, nominees and fiduciaries for reasonable expenses incurred in
connection therewith. The Company has retained The Bank of New York, its
transfer agent, at an estimated cost of $5,000, to assist in the Company's
solicitation of proxies from brokers, nominees, institutions and individuals. In
addition, proxies may be solicited by directors, officers and employees of the
Company in person or by telephone, telegram or other means of communication. No
additional compensation will be paid for such services.
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 Class A and
Class B Common Stock issued and outstanding on the Record Date. Shares that are
voted "FOR", "AGAINST", "WITHHELD" or "ABSTAIN" on a matter 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 FOR ANNUAL MEETING FOR THE YEAR
ENDED DECEMBER 31, 1999
The Company currently intends to hold its 2000 Annual Meeting of
Stockholders in May 2000 and to mail Proxy Statements relating to such meeting
in April 2000. Stockholder proposals intended to be presented at the 2000 Annual
Meeting must be received by the Company for inclusion in the Proxy Statement and
form of proxy for that meeting no later than December 20, 1999. Such stockholder
proposals should be submitted to Larscom Incorporated at 1845 McCandless Drive,
Milpitas, California 95035, Attention: Secretary.
2
<PAGE>
PROPOSAL ONE
ELECTION OF DIRECTORS
NOMINEES
The number of directors authorized by the Company's Board is currently fixed
at six and six directors are to be elected at the Annual Meeting of
Stockholders.
Unless otherwise instructed, the proxy holders will vote the proxies
received by them for the six (6) nominees named below. In the event that any
such nominee is unable or declines to serve as a director at the time of the
Annual Meeting, the proxies will be voted for a nominee who shall be designated
by the present Board of Directors to fill the vacancy. In the event that
additional persons are nominated for election as directors, the proxy holders
intend to vote all proxies received by them in such a manner as will assure the
election of as many of the nominees listed below as possible, and, in such
event, the specific nominees to be voted for will be determined by the proxy
holders. The Company is not aware of any nominee who will be unable or will
decline to serve as a director. The term of office of each person elected as a
director will continue until the next Annual Meeting or until such director's
successor has been duly elected and qualified.
<TABLE>
<CAPTION>
NAME OF DIRECTOR AGE PRINCIPAL OCCUPATION
- ----------------------------- --- -----------------------------------------------------------------------------
<S> <C> <C>
Paul E. Graf................. 55 President, Chief Executive Officer and Director of Axel Johnson Inc.
Donald Green................. 67 Chairman of the Board and Chief Executive Officer of Advanced Fibre
Communications, Inc.
Donald G. Heitt.............. 63 Retired Chairman of the Board of Voysys Corporation
Lawrence D. Milligan......... 63 Retired Senior Vice President of Procter & Gamble Co.
Harvey L. Poppel............. 61 Retired Managing Director of Broadview International
Joseph F. Smorada............ 52 Senior Vice President and Chief Financial Officer of Axel Johnson Inc.
</TABLE>
Except as set forth below, each nominee has engaged in his or her principal
occupation described above during the past five years. There is no family
relationship among any directors or executive officers of the Company.
PAUL E. GRAF has served as Chairman of the Board of Directors of the Company
since June 1990. Mr. Graf has served as President, Chief Executive Officer and
director of Axel Johnson since 1989. Prior to joining Axel Johnson, Mr. Graf
held various senior executive positions with Schroders, a venture capital
company, Conrac Corporation and Texas Instruments. Mr. Graf earned a BS in
Electrical Engineering from Rensselear Polytechnic Institute and an MBA from
Boston University.
DONALD GREEN has served as a director of the Company since August 1998. He
is a co-founder of Advanced Fibre Communications, Inc. ("AFC") and has served as
Chairman of the Board of AFC since May 1992. Mr. Green has also served as Chief
Executive Officer of AFC from June 1998 to April 1999 and from May 1992 to June
1997. Prior to AFC, Mr. Green founded Optilink Corporation in 1987 and served as
its Chief Executive Officer until the company was acquired in 1990 by DSC
Communications Corporation, when he became Vice President and General Manager of
the renamed DSC Optilink Access Products division. Prior to his founding
Optilink Corporation, Mr. Green founded Digital Telephone Systems in 1969. Mr.
Green is also a director of TCSI Corporation, two private organizations and a
private non-profit foundation. Mr. Green earned a BS from London University.
DONALD G. HEITT has served as a director of the Company since November 1996.
He served as Chairman of the Board of Voysys Corporation from December 1995
until his retirement in May 1998.
3
<PAGE>
From April 1990 to January 1996, Mr. Heitt was the President and Chief Executive
Officer of Voysys Corporation. Prior to 1990, Mr. Heitt served as Senior Vice
President of Telebit Corporation, Vice President of Sales and Marketing and
President of the computer division of General Automation, Inc., and Vice
President of Honeywell Information Systems, Inc. Mr. Heitt earned a BBA from the
University of Iowa.
LAWRENCE D. MILLIGAN has served as a director of the Company since November
1998. Mr. Milligan held several senior management positions over the course of
38 years with Procter & Gamble Co. Prior to retiring from Procter & Gamble in
1998, he was the Senior Vice President responsible for worldwide sales and
customer development, a position he held for eight years. Mr. Milligan is Vice
Chairman of the Board of Directors of Axel Johnson and is a member of the Board
of Directors of U.S. Playing Card Company and Portman Equipment Company. He
serves on the Dean's Advisory Councils of Goizueta Business School at Emory
University and the University of Texas at Austin. He graduated from Williams
College and served in the United States Marine Corp.
HARVEY L. POPPEL has served as a director of the Company since November
1996. He served as Managing Director at Broadview International from January
1985 until his retirement in December 1996 and as President of Poptech, Inc.
since 1984. Previously, he was Senior Vice President, Board Member and Managing
Officer of the Information Industry Practice at Booz, Allen & Hamilton and
managed communications software development at both Western Union and
Westinghouse Electric. He also is a director of Cotelligent, Inc., a
professional services firm. Mr. Poppel holds a BS and an MS from Rensselear
Polytechnic Institute.
JOSEPH F. SMORADA has served as a director of the Company since June 1992.
Mr. Smorada has served as Senior Vice President and Chief Financial Officer of
Axel Johnson since April 1992. Prior to joining Axel Johnson, Mr. Smorada was
Senior Vice President and Chief Financial Officer for Lone Star Industries, Inc.
from September 1988 to April 1992. Prior to 1988, Mr. Smorada held senior
executive positions with Conrac Corporation and Continental Group, Inc. Mr.
Smorada earned a BA in Economics from California University of Pennsylvania.
BOARD MEETINGS AND COMMITTEES
The Board of Directors of the Company held nine meetings during the year
ended December 31, 1998, of which four were meetings in person and five were
held by telephone conference call. The Board of Directors acted by unanimous
written consent in lieu of a meeting three times during the year ended December
31, 1998. The Board of Directors does not have a nominating committee or any
committee performing similar functions. All members of the Board of Directors
attended more than 75% of the meetings, except for Kevin Kalkhoven, who served
on the Board of Directors prior to May 1998 and did not stand for reelection at
the May 28, 1998 Annual Meeting of Stockholders.
The Audit Committee, which currently consists of Messrs. Green, Poppel and
Smorada, held nine meetings during 1998, four of which were meetings in person
and five were held by telephone conference call. Through April 1998, the Audit
Committee included Mr. Kalkhoven who did not stand for reelection in 1998 and
from May 1998 through August 1998, it included Mr. Heitt. Mr. Green joined the
Audit Committee in August 1998. The Audit Committee is primarily responsible for
approving the services performed by the Company's independent accountants and
for reviewing and evaluating the Company's accounting principles and its system
of internal controls. All members of the Audit Committee attended more than 75%
of its meetings except for Mr. Green who attended 67% of the meetings subsequent
to his appointment and Mr. Kalkhoven who attended no meetings.
The Compensation Committee, which currently consists of Messrs. Graf, Heitt,
Milligan and Poppel, held ten meetings during 1998, four of which were meetings
in person and six were held by telephone conference call. The Compensation
Committee reviews and approves the Company's
4
<PAGE>
executive compensation policies and approves all stock option grants. All
members of the Compensation Committee attended more than 75% of the meetings.
DIRECTOR COMPENSATION
Prior to August 5, 1998, Compensated Directors (directors who were not
employees of the Company or employees or directors of Axel Johnson), received
compensation for their services as directors at the rate of $1,500 per quarter
and $1,000 per Board of Directors or committee meeting attended in person.
Beginning August 5, 1998, Compensated Directors receive compensation for their
services as directors at the rate of $1,500 per quarter and $1,500 per Board of
Directors meeting attended plus $500 for each telephonic Board of Directors
meeting held in a quarter after the first such meeting, for which no
compensation is paid. Generally, Compensation Committee and Audit Committee
meetings are held quarterly at the time of the Board of Director meetings.
Beginning August 5, 1998, Committee chairs who are Compensated Directors receive
compensation for their services of $1,500 per year and Committee members who are
Compensated Directors receive compensation of $1,000 per year. Directors are not
compensated for attending committee meetings.
Compensated Directors participate in the Company's Stock Option Plan for
Non-Employee Directors (the "Directors' Plan"). Under the Directors' Plan, upon
joining the Board, Compensated Directors are automatically granted an initial
option to purchase 18,000 shares of the Company's Class A Common Stock, with an
exercise price equal to the fair market value of the Company's Class A Common
Stock on the date of grant. Pursuant to the terms of the Directors' Plan,
Compensated Directors receive thereafter annual options to purchase 6,000 shares
of the Company's Class A Common Stock, with an exercise price equal to the then
fair market value of the Company's Class A Common Stock on the date of grant. A
grant of options to purchase 6,000 shares each of Class A Common Stock was made
to Messrs. Poppel and Heitt at an exercise price equal to the then fair market
value of the Class A Common Stock on the date of the 1998 Annual Meeting of
Stockholders. Pursuant to the Directors' Plan, on August 5, 1998, Mr. Green was
granted an option to purchase 18,000 shares of Class A Common Stock at an
exercise price equal to the then fair market value of the Company's Common Stock
on the date of grant, which option vests in three equal installments on the date
of each of the three Annual Meetings of Stockholders following the grant.
VOTE REQUIRED; RECOMMENDATION OF BOARD OF DIRECTORS
The six 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 UNANIMOUSLY RECOMMENDS THAT THE STOCKHOLDERS VOTE
"FOR" THE NOMINEES SET FORTH ABOVE.
5
<PAGE>
PROPOSAL TWO
RATIFICATION OF APPOINTMENT OF INDEPENDENT ACCOUNTANTS
The Board of Directors has selected PricewaterhouseCoopers LLP, independent
accountants, to audit the consolidated financial statements of the Company for
the year ending December 31, 1999. This appointment is being presented to the
stockholders for ratification at the meeting. If the stockholders reject the
appointment, the Board of Directors will reconsider its selection.
PricewaterhouseCoopers LLP has audited the Company's financial statements
since 1993 and performed reviews from 1987 through 1992. Its representatives are
expected to be present at the Annual Meeting with the opportunity to make a
statement if they desire to do so and are expected to be available to respond to
appropriate questions.
VOTE REQUIRED; RECOMMENDATION OF BOARD OF DIRECTORS
The affirmative vote of a majority of the Votes Cast on the proposal at the
Annual Meeting will be required to approve the ratification of the Board's
appointment of PricewaterhouseCoopers LLP as independent accountants of the
Company for the year ending December 31, 1999.
THE BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED THE APPOINTMENT OF
PRICEWATERHOUSECOOPERS LLP AS THE COMPANY'S INDEPENDENT ACCOUNTANTS FOR THE YEAR
ENDED DECEMBER 31, 1999 AND RECOMMENDS THAT STOCKHOLDERS VOTE "FOR" THIS
PROPOSAL.
6
<PAGE>
ADDITIONAL INFORMATION
EXECUTIVE COMPENSATION
The following table sets forth information regarding the compensation of the
Company's Acting Chief Executive Officer, each of the other most highly
compensated executive officers of the Company whose salary and bonus exceeded
$100,000 during the year ended December 31, 1998, an individual who served as
the Company's Chief Executive Officer during part of 1998 and two individuals
who were two of the Company's most highly compensated executive officers but
were not serving as executive officers at the end of 1998 (collectively, the
"Named Executive Officers"), for services rendered in all capacities to the
Company for the years ended December 31, 1998, 1997 and 1996:
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
SUMMARY COMPENSATION
TABLE ----------------------
ANNUAL COMPENSATION LONG-TERM SECURITIES ALL OTHER
FISCAL ---------------------------- INCENTIVE UNDERLYING COMPENSATION
NAME YEAR SALARY($) BONUS(1)($) PLAN(2)($) OPTIONS(#) ($)
- ---------------------------------------- ------ ----------- ----------- --------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
George M. Donohoe....................... 1998 219,916(7) -- -- 88,500 11,312(10)
Acting Chief Executive 1997 180,043(7) 51,410 -- 12,500 11,845(10)
Officer 1996 198,550(7) 60,542 31,946 35,000 11,123(10)
Bruce D. Horn........................... 1998 132,987 -- -- 44,000 11,718(11)
Vice President, Finance and 1997 118,652 50,000 -- 10,000 9,719(11)
Chief Financial Officer 1996 107,500 60,000 23,340 25,000 3,870(11)
Stephen A. Gartner(3)................... 1998 172,921(8) -- -- 44,500 5,181(12)
Vice President, Sales 1997 142,602(8) -- -- 4,000 4,889(12)
1996 133,428(8) 8,803 -- 10,500 4,170(12)
Jeffrey W. Reedy........................ 1998 140,302 -- -- 57,500 4,503(13)
Vice President, Engineering 1997 125,583 51,410 -- 12,500 6,052(13)
Network Systems Group 1996 108,260 69,966 118,153 35,000 3,420(13)
Amin Pessah(3).......................... 1998 194,307(9) -- -- 57,000 5,284(14)
Vice President and General 1997 178,368(9) 15,027 -- 5,000 3,489(14)
Manager, Digital Access Group 1996 192,549(9) 21,463 -- 15,000 3,420(14)
Deborah M. Soon(4)...................... 1998 252,935 -- -- -- 19,528(15)
Former President and Chief 1997 213,375 138,503 -- 40,000 13,610(15)
Executive Officer 1996 179,159 166,287 401,306 115,000 12,510(15)
Paul A. Strudwick(5).................... 1998 120,101 -- -- -- 50,079(16)
Former Vice President, 1997 125,063 60,000 -- 12,500 10,361(16)
Strategic Planning 1996 109,602 69,817 39,270 35,000 8,879(16)
William H. Cory(6)...................... 1998 124,718 -- -- -- 76,297(17)
Former Vice President, 1997 122,172 38,500 -- 12,500 4,777(17)
Operations 1996 113,503 69,817 36,621 35,000 3,457(17)
</TABLE>
- ------------------------
(1) Represents bonuses earned in the year indicated and paid in the following
year.
(2) Eligible executives of the Company had historically participated in the Axel
Johnson Long-Term Incentive Plan (the "Long-Term Incentive Plan"). This
Long-Term Incentive Plan was eliminated for Larscom employees upon
consummation of the Company's initial public offering. The goal of the
Long-Term Incentive Plan was to focus executives on producing superior
long-term returns for the Company over a period longer than one year. The
Compensation Committee of Axel Johnson's Board of Directors selected the
participants and established the performance targets and associated formulas
for awards under the Long-Term Incentive Plan. The length of performance
7
<PAGE>
cycles under the Long-Term Incentive Plan varied from three to five years
and performance awards have historically been paid in cash at the end of
each performance cycle. Certain executives of the Company were also
participants in an alternative long-term incentive plan for the 1994 to 1996
performance cycle based on higher performance levels which, if met, would
have provided up to approximately $300,000 in additional cash in lieu of
both the regular Long-Term Incentive Plan payment and the 1996 Annual Bonus
Plan. Upon the discontinuation of the Long-Term Incentive Plan,
participating executives received payments in both cash and stock as
follows:
<TABLE>
<CAPTION>
PAID IN STOCK AT A PRICE OF
PAID IN CASH $12 PER SHARE (*)
-------------- ------------------------------
NAME 1994-1996 PLAN 1995-1999 PLAN 1996-2000 PLAN
- --------------------------------------------- -------------- -------------- --------------
<S> <C> <C> <C>
George M. Donohoe............................ -- $ 18,700 $ 13,246
Bruce D. Horn................................ -- 14,025 10,597
Jeffrey W. Reedy............................. $ 66,884 32,725 18,544
Deborah M. Soon.............................. 278,821 74,800 47,685
Paul A. Strudwick............................ -- 23,375 15,895
William H. Cory.............................. -- 23,375 13,246
</TABLE>
- ------------------------
(*) A total of 25,518 shares were issued in March 1997 to the Named Executive
Officers related to these Plans.
(3) Mr. Gartner and Mr. Pessah were appointed as officers of the Company in May
1998.
(4) Ms. Soon ceased to be an officer of the Company in October 1998 and entered
into a severance agreement with the Company. See "Employment Contracts,
Severance and Change in Control Arrangements."
(5) Mr. Strudwick ceased to be an officer and an employee of the Company in
October 1998.
(6) Mr. Cory ceased to be an officer and an employee of the Company in
September 1998.
(7) Includes sales commissions of $23,881, $67,849 and $108,093 in 1998, 1997
and 1996, respectively.
(8) Includes sales commissions of $61,053, $67, 133 and $61,418 in 1998, 1997,
and 1996, respectively.
(9) Includes sales commissions of $38,768, $86,569 and $106,002 in 1998, 1997
and 1996, respectively.
(10) Includes the matching contribution under the Company's 401k plan which the
Company made on behalf of the Named Officer of $3,686, $3,445 and $3,420
in 1998, 1997 and 1996, respectively, an automobile allowance of $6,209,
$6,942 and $7,703 paid in 1998, 1997 and 1996 respectively and other
benefits of $1,417 and $1,458 in 1998 and 1997, respectively.
(11) Includes the matching contribution under the Company's 401k plan which the
Company made on behalf of the Named Officer of $4,788, $4,266 and $3,870,
in 1998, 1997 and 1996, respectively, an automobile allowance of $6,930,
$2,424 in 1998 and 1997, respectively and other benefits of $3,029 in
1997.
(12) Includes the matching contribution under the Company's 401k plan which the
Company made on behalf of the Named Officer of $5,181, $4,889 and $3,420
in 1998, 1997 and 1996, respectively, and an automobile allowance of $750
in 1996.
(13) Includes the matching contribution under the Company's 401k plan which the
Company made on behalf of the Named Officer of $4,504, $4,309 and $3,420
in 1998, 1997 and 1996, respectively and other benefits of $1,743 in 1997.
(14) Includes the matching contribution under the Company's 401k plan which the
Company made on behalf of the Named Officer of $3,663, $3,489 and $3,420
in 1998, 1997 and 1996, respectively, and other benefits of $1,621 in
1998.
8
<PAGE>
(15) Includes the matching contribution under the Company's 401k plan which the
Company made on behalf of the Named Officer of $5,760, $5,700 and $5,395
in 1998, 1997 and 1996, respectively, an automobile allowance of $12,067,
$6,396 and $7,115 paid in 1998, 1997 and 1996 respectively, and other
benefits of $1,701 and $1,514 in 1998 and 1997, respectively.
(16) Includes the matching contribution under the Company's 401k plan which the
Company made on behalf of the Named Officer of $4,324, $4,502 and $3,946
in 1998, 1997 and 1996, respectively, an automobile allowance of $6,194,
$4,446 and $4,933 in 1998, 1997 and 1996 respectively, a severance payment
of $36,980 in 1998 and other benefits of $2,581 and $1,413 in 1998 and
1997, respectively.
(17) Includes the matching contribution under the Company's 401k plan which the
Company made on behalf of the Named Officer of $3,619, $3,446 and $3,457
in 1998, 1997 and 1996, respectively, other benefits of $865 and $1,331 in
1998 and 1997, respectively, and a severance payment of $71,813 in 1998.
OPTION GRANTS AND EXERCISES
The following table sets forth each grant of stock options made during the
year ended December 31, 1998 to each of the Named Executive Officers:
<TABLE>
<CAPTION>
OPTION GRANTS IN THE YEAR ENDED DECEMBER 31, POTENTIAL REALIZABLE VALUE
------------------------------
1998
INDIVIDUAL GRANTS ASSUMING ANNUAL
------------------------------------------------ RATES OF STOCK
% OF TOTAL PRICE
NUMBER OF OPTIONS APPRECIATION USING BLACK-
SECURITIES GRANTED TO FOR OPTION TERM SCHOLES
UNDERLYING EMPLOYEES EXERCISE (2) OPTION
OPTIONS IN FISCAL PRICE EXPIRATION --------------- PRICING MODEL
NAME GRANTED YEAR(1) ($/SHARE) DATE 5%($) 10%($) ($)(3)
- ---------------------------------------- ---------- ---------- --------- ---------- ------ ------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
George M. Donohoe....................... 15,000 0.7% 2.000 12/7/08 18,867 47,812 15,500
60,500(4) 2.6% 1.750 11/2/08 63,529 163,873 44,252
13,000 0.6% 8.188 2/18/08 66,938 169,634 58,942
Bruce D. Horn........................... 9,000 0.4% 1.719 11/19/08 9,729 24,254 8,017
35,000 1.5% 1.750 11/2/08 36,752 94,803 26,656
Stephen A. Gartner...................... 10,000 0.4% 1.719 11/19/08 10,809 27,393 8,908
24,500(4) 1.1% 1.750 11/2/08 25,727 66,362 16,918
10,000 0.4% 6.813 6/26/08 42,847 108,582 35,813
Jeffrey W. Reedy........................ 10,000 0.4% 1.719 11/19/08 10,809 27,393 8,908
47,500(4) 2.1% 1.750 11/2/08 49,878 128,661 36,262
Amin Pessah............................. 11,000 0.5% 1.719 11/19/08 11,890 30,133 9,798
33,000(4) 1.4% 1.750 11/2/08 34,652 89,385 23,280
13,000 0.6% 8.188 2/18/08 66,938 169,634 58,942
Deborah M. Soon(5)...................... -- -- -- -- -- -- --
Paul A. Strudwick(6).................... -- -- -- -- -- -- --
William H. Cory(7)...................... -- -- -- -- -- -- --
</TABLE>
- ------------------------
(1) A total of 2,295,825 options were granted to employees and directors during
the year ended December 31, 1998 under the Stock Incentive Plan, of which
1,387,325 were granted as a result of cancellation and replacement of
options.
(2) The dollar amounts in these columns are the results of calculations at the
five percent and ten percent rates set by the SEC and are not intended to
predict future appreciation of the Company's
9
<PAGE>
securities. There is no assurance provided to any executive officer or any
other holder of the Company's securities that the actual stock price
appreciation over the 10-year option term will be at the assumed 5% or 10%
annual rate of compounded stock price appreciation or at any other defined
level. Unless the market value of the common stock appreciates over the
option term, no value will be realized from the option grants made to the
executive officers.
(3) In determining the potential realizable value using the Black-Scholes option
pricing model the following assumptions were made: a risk free interest rate
of 4.54%, an average expected option life of 3.61 years, an expected
volatility of 70% and a zero dividend yield.
(4) Represents new options granted in November 1998 in exchange for previously
outstanding options. Exercise price of new options exceeded market price of
Common Stock on date of grant.
(5) Ms. Soon ceased to be an officer of the Company in October 1998.
(6) Mr. Strudwick ceased to be an officer and an employee of the Company in
October 1998.
(7) Mr. Cory ceased to be an officer and an employee of the Company in September
1998.
The following table sets forth certain information with respect to stock
options exercised by the Named Executive Officers during 1998, including the
aggregate value of gains on the date of exercise. In addition, the table sets
forth the number of shares covered by stock options as of December 31, 1998, and
the value of "in-the-money" stock options, which represents the positive spread
between the exercise price of a stock option and the market price of the shares
subject to such option on December 31, 1998.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT IN-THE-MONEY OPTIONS
SHARES FISCAL YEAR END AT FISCAL YEAR END
ACQUIRED VALUE -------------------------- --------------------------
NAME ON EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ----------------------------------- ----------- ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
George M. Donohoe.................. -- -- -- 75,500 -- --
Bruce D. Horn...................... -- -- -- 44,000 -- --
Stephen A. Gartner(1).............. -- -- -- 34,500 -- --
Jeffrey W. Reedy................... -- -- -- 57,500 -- --
Amin Pessah(1)..................... -- -- -- 44,000 -- --
Deborah M. Soon(2)................. -- -- 54,000 101,000 -- --
Paul A. Strudwick(3)............... -- -- 7,000 -- -- --
William H. Cory(4)................. -- -- -- -- -- --
</TABLE>
- ------------------------
(1) Mr. Gartner and Mr. Pessah were appointed officers of the Company in May
1998.
(2) Ms. Soon ceased to be an officer of the Company in October 1998.
(3) Mr. Strudwick ceased to be an officer and an employee of the Company in
October 1998.
(4) Mr. Cory ceased to be an officer and an employee of the Company in September
1998.
10
<PAGE>
TEN-YEAR OPTION REPRICINGS
The following table sets forth certain information with respect to the
Company's exchange of certain outstanding options with certain of its officers
in November 1998.
TEN YEAR OPTION/SAR REPRICINGS
<TABLE>
<CAPTION>
LENGTH OF
ORIGINAL
OPTION
NUMBER OF NUMBER OF MARKET TERM
SECURITIES SECURITIES PRICE OF EXERCISE REMAINING
UNDERLYING UNDERLYING STOCK AT PRICE AT NEW AT DATE OF
OPTIONS OPTIONS TIME OF TIME OF EXERCISE EXCHANGE
NAME AND PRINCIPAL POSITION DATE EXCHANGED ISSUED EXCHANGE EXCHANGE PRICE (IN YEARS)
- -------------------------------- --------- ----------- ----------- ----------- ---------- ----------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
George M. Donohoe............... 11/2/98 35,000 35,000 $ 1.7190 $ 12.0000 $ 1.750 8
Acting Chief Executive 11/2/98 12,500 12,500 1.7190 11.1250 1.750 9
Officer 11/2/98 13,000 13,500 1.7190 8.1875 1.750 9
Bruce D. Horn................... 11/2/98 25,000 25,000 1.7190 12.0000 1.750 8
Vice President, Finance 11/2/98 10,000 10,000 1.7190 11.1250 1.750 9
and Chief Financial Officer
Stephen A. Gartner.............. 11/2/98 10,500 10,500 1.7190 12.0000 1.750 8
Vice President, Sales 11/2/98 4,000 4,000 1.7190 11.1250 1.750 9
11/2/98 10,000 10,000 1.7190 6.6130 1.750 9
Rebecca C. Horn................. 11/2/98 35,000 35,000 1.7190 2.3750 1.750 9
Vice President and General
Manager, Network Systems Group
Jeffrey W. Reedy................ 11/2/98 35,000 35,000 1.7190 12.0000 1.750 8
Vice President, 11/2/98 12,500 12,500 1.7190 11.1250 1.750 9
Engineering Network Systems
Group
Amin Pessah..................... 11/2/98 15,000 15,000 1.7190 12.0000 1.750 8
Vice President and 11/2/98 5,000 5,000 1.7190 11.1250 1.750 9
General Manager, Digital 11/2/98 13,000 13,000 1.7190 8.1875 1.750 9
Access Group
</TABLE>
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee of the Board of Directors currently consists of
Messrs. Graf, Heitt, Milligan and Poppel. None of the members of the
Compensation Committee was or is an officer or employee of the Company. No
interlocking relationship exists between any member of the Company's
Compensation Committee and member of any other company's board of directors or
compensation committee.
EMPLOYMENT CONTRACTS, SEVERANCE AND CHANGE IN CONTROL ARRANGEMENTS
Pursuant to an agreement dated as of October 6, 1998, the Company agreed to
provide certain continuing employee benefits to Deborah Soon when she ceased to
be employed as the Company's Chief Executive Officer. Pursuant to the agreement,
Ms. Soon remained an employee of the Company through March 31, 1999 and received
salary continuation through such date of her base salary and
11
<PAGE>
other employee benefits in effect as of September 30, 1998. The Company also
agreed to continue to pay Ms. Soon's base salary, on the Company's regular
payroll dates, from April 1, 1999 until the earlier of September 30, 1999 or
such time as Ms. Soon accepts employment with another company or enters into
certain consulting arrangements. The Company also agreed to pay up to $15,000
for outplacement services with a provider of Ms. Soon's choice.
Pursuant to letters dated December 11, 1998 and December 31, 1998 from the
Chairman of the Compensation Committee of the Company's Board of Directors to
Mr. Donohoe, if upon the Company's hiring of a new Chief Executive Officer, Mr.
Donohoe is asked to end his employment with the Company for reasons other than
for cause, the Company has agreed to continue Mr. Donohoe's employment for a
period of twelve months or, if sooner, such date as Mr. Donohoe obtains other
employment.
RELATIONSHIP BETWEEN THE COMPANY AND AXEL JOHNSON
Prior to the Company's initial public offering in December 1996, the Company
was a wholly owned subsidiary of Axel Johnson. As the sole stockholder, Axel
Johnson was responsible for providing the Company with financial, management,
administrative and other resources. Furthermore, Axel Johnson maintained
substantial control over the day-to-day operations of the Company.
Services provided to the Company by Axel Johnson include significant
management functions and services, including treasury, accounting, tax, internal
audit, legal, human resources and other support services. The Company was
charged and/or allocated expenses of $425,000, $622,000 and $527,000 for the
years ended December 31, 1998, 1997 and 1996, respectively. The costs of these
services were directly charged and/or allocated using methods that the Company's
management believes are reasonable. Such charges and allocations are not
necessarily indicative of the costs the Company would have incurred to obtain
these services had it been a separate entity. Neither Axel Johnson nor the
Company has conducted any study or obtained any estimates from third parties to
determine what the cost of obtaining such services from third parties may have
been.
The Company and Axel Johnson entered into a number of agreements prior to
the Company's initial public offering for the purpose of defining the ongoing
relationship between them. These agreements were negotiated in the context of a
parent-subsidiary relationship and therefore are not the result of negotiations
between independent parties. It is the intention of the Company and Axel Johnson
that such agreements and the transactions provided for therein maintain certain
mutually beneficial arrangements on overall terms which the Company and Axel
Johnson believe to be at least as favorable to Larscom as could have been
obtained from unrelated third parties. However, because of the complexity of the
various relationships between the Company and Axel Johnson, there can be no
assurance that the terms of any individual element of such arrangements are as
favorable to the Company as could have been obtained from unaffiliated third
parties. The following summaries address all material provisions of such
agreements. While these agreements will provide the Company with certain
benefits, the Company is only entitled to the ongoing assistance of Axel Johnson
for a limited time and it may not enjoy benefits from its relationship with Axel
Johnson beyond the term of the agreements.
Subsequent to the Company's initial public offering, the Company adopted a
policy that all future agreements between the Company and Axel Johnson will be
on terms that the Company believes are no less favorable to the Company than the
terms the Company believes would be available from unaffiliated parties. In that
regard, the Company intends to follow the procedures provided by the Delaware
General Corporation Law (the "DGCL") which include a vote to affirm any such
future agreements by a majority of the Company's directors who are not employees
of Axel Johnson (even though such directors may be less than a quorum). There
can be no assurance that any such
12
<PAGE>
arrangements or transactions will be the same as that which would be negotiated
between independent parties.
The following is a summary of certain arrangements between the Company and
Axel Johnson that became effective upon consummation of the Company's initial
public offering.
ADMINISTRATIVE SERVICES AGREEMENT
The Company and Axel Johnson entered into an administrative services
agreement (the "Services Agreement") effective since the consummation of the
Company's initial public offering, pursuant to which Axel Johnson continues to
provide limited services to the Company, including treasury, accounting, tax,
internal audit, legal and human resource functions.
Each service under the Services Agreement was initially provided for a
period of two years. In 1998 the Company unilaterally extended the term for an
additional year, in accordance with the Service Agreement. However, to the
extent legally permissible, the Company may terminate any individual service or
all services that it receives under the Services Agreement at any time upon 45
days prior written notice. Otherwise, the Services Agreement shall terminate
upon the earlier of, among other things, (i) three years after the consummation
of the Company's initial public offering or (ii) the date which Axel Johnson
owns less than 50% of the voting control of the Company; provided, however, that
if such reduction in voting control results from a sale or transfer of Class B
Common Stock by Axel Johnson, the services shall continue to be provided for a
period of 90 days thereafter. The Company is obligated to take all steps
necessary to obtain its own administrative and support services prior to the
termination of the Services Agreement.
The Company is obligated to pay fees established in the Services Agreement
based upon the type and amount of services rendered. Axel Johnson charged an
annual fee of $425,000 for all of the services that it provided under the
Services Agreement for 1998. These fees will be approximately $438,000 for 1999.
In addition, the Company reimburses Axel Johnson for any out-of-pocket expenses
it incurs in connection with providing the services.
Axel Johnson incurred various costs related to services provided to the
Company which were charged to the Company. These are as follows:
<TABLE>
<CAPTION>
1998
------------
<S> <C>
Pension and thrift plan......................................................... $ 2,563,000
Health insurance................................................................ 828,000
Property, liability and general insurance....................................... 857,000
Other charges................................................................... 303,000
</TABLE>
Larscom participates in the centralized cash management system operated by
Axel Johnson. Under this system all payments made by Larscom are settled by Axel
Johnson and all receipts from customers are remitted to Axel Johnson. Cash
payments made, net of cash remittances were $7,305,000 during 1998.
TAX SHARING AGREEMENT
The Company and Axel Johnson entered into a tax sharing agreement (the "Tax
Sharing Agreement") effective since the consummation of the Company's initial
public offering, pursuant to which the Company has made a payment to Axel
Johnson of an amount in respect of taxes shown as due attributable to the
operations of the Company on the consolidated federal income tax return filed
along with Axel Johnson for the short period commencing on January 1, 1996 and
ending on the date on which the Company ceased to be a member of the Axel
Johnson consolidated group, December 19, 1996. For the period subsequent to the
initial public offering the Company filed combined state
13
<PAGE>
income tax returns with Axel Johnson or its subsidiaries, pursuant to which
appropriate payments were made by or to the Company. Axel Johnson will indemnify
the Company from liability for certain matters, including, net of corresponding
tax benefits, any federal, state or local income or other taxes attributable to
any affiliated or combined group of which the Company is a member for any period
ending after the Company's initial public offering. The Company has agreed to
indemnify Axel Johnson and its subsidiaries from liability for certain matters,
including any federal, state or local income or other taxes attributable to the
operations of the Company subsequent to the Company's initial public offering.
Subsequent to the Company's initial public offering, the Company has made its
own tax filings, with assistance provided by Axel Johnson under the Services
Agreement.
CREDIT AGREEMENT
The Company and Axel Johnson entered into a credit agreement, pursuant to
which Axel Johnson has agreed to provide a revolving credit/working capital
facility (the "Credit Agreement") to the Company in an aggregate amount of
$15,000,000. The Credit Agreement expires in December 2000. Any loans thereunder
bear interest during each calendar quarter at a rate per annum equal to the sum
of the three month London Interbank Offered Rate (LIBOR), plus 2.0% initially on
the date when the loan is made and adjusted thereafter on the first business day
of each calendar quarter. Additionally, the Company is required to pay a
commitment fee of 0.5% per annum on the unused portion of the Credit Agreement.
The Company is required to maintain compliance with certain covenants under the
Credit Agreement. As of December 31, 1998, $15,000,000 was available, and during
1998, 1997 and 1996, no borrowings were made under the Credit Agreement.
The Credit Agreement contains various representations, covenants and events
of default typical for financing of a similar size and nature. As a condition to
borrowing pursuant to the Credit Agreement, Larscom must be able to represent
that, among other things, it is duly incorporated and has the corporate
authority to enter into the Credit Agreement, there are no conflicts with the
Certificate of Incorporation or Bylaws or any contract of Larscom, there has
been no material adverse change in the financial condition or results of
operations of Larscom since November 20, 1998 and that there is no pending or
threatened litigation that would have a material adverse effect on the Company.
Larscom covenants to, among other things, keep its legal existence in effect,
cause to be done all things necessary to maintain and operate its business in
substantially the same manner, pay all indebtedness and other obligations,
provide Axel Johnson with certain financial information and to use the proceeds
of the loans for the purposes set forth in the Credit Agreement. The events of
default under the Credit Agreement include any failure to pay punctually any
principal or interest due under the Credit Agreement, any act of insolvency of
Larscom and any sale by Larscom of all or substantially all of its assets. Upon
an event of default, the line of credit shall become payable in full.
The Credit Agreement also permits Axel Johnson to require, upon 90 days
written notice, a mandatory prepayment of all, or a portion of all outstanding
loans and to terminate the Credit Agreement in the event that Axel Johnson (i)
owns less than the majority of the outstanding voting stock of Larscom or (ii)
nominates less than a majority of the persons to be elected to the Board of
Directors of Larscom.
14
<PAGE>
REPORT OF THE COMPENSATION COMMITTEE
The Compensation Committee administers all of the Company's stock option
plans, which include the Stock Option Plan for Non-Employee Directors, the Stock
Incentive Plan, and the Employee Stock Purchase Plan. The Compensation Committee
also recommends to the Board salaries, bonuses, benefits and other remuneration
payable to the officers and key employees of the Company. The members of the
Compensation Committee are Paul E. Graf, Donald G. Heitt, Lawrence D. Milligan
and Harvey L. Poppel, none of whom is employed by the Company.
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. To that end the Company has provided
incentives to its executive officers in the following three ways:
1) BASE SALARY. The base salaries of executive officers are initially
determined by evaluating the responsibilities of the position held and
the experience and performance of the individual, with reference to the
competitive marketplace for executive talent, including a comparison of
base salaries for comparable positions based on industry surveys made
available to the Compensation Committee.
2) CASH BONUS. The Company's executive cash bonus plan is designed to
reward executive officers based on the financial performance of the
Company during the year. Under the plans, cash bonuses are determined
based upon the Company's achievement against specific financial
performance objectives. This plan emphasizes the Compensation Committee's
belief that, when the Company is successful, the executives should be
appropriately compensated. Conversely, if the Company is not profitable,
no bonuses are paid, absent extraordinary circumstances. No bonuses have
been or will be paid to executive officers based on the financial
performance of the Company during 1998.
3) STOCK OPTIONS. The principal equity components of executive
compensation are options granted under the Company's Stock Incentive
Plan. Stock options are generally granted when an executive joins the
Company with additional options granted from time to time for promotions
and performance. The initial option granted to an executive vests over a
period of four years. The Compensation Committee believes that the stock
option participation provides a method of retention and motivation for
the senior level executives of the Company and also aligns senior
management's objectives with long-term stock price appreciation.
Executives are also eligible to participate in the Employee Stock
Purchase Plan pursuant to which stock may be purchased at 85 percent of
the lower of the closing sale price for the Class A Common Stock as
reported on the NASDAQ National Market at the beginning or
15
<PAGE>
end of each six month offering period subject to various limitations on
the number of shares that can be purchased.
CHIEF EXECUTIVE OFFICER'S COMPENSATION
Mr. Donohoe was appointed as Acting Chief Executive Officer of the Company
by the Board of Directors in October 1998 and his annual salary was increased to
$245,000. Mr. Donohoe's compensation for 1998 reflects the Compensation
Committee's evaluation of his overall leadership skills and the significant
experience he brings to the Company as its Acting Chief Executive Officer. In
determining Mr. Donohoe's compensation, the
Compensation Committee considered, among other factors, the importance of
maintaining stability at the executive level within the Company, Mr. Donohoe's
previous experience in the industry and his length of service with the Company.
In October 1998, Deborah M. Soon ceased to be employed as the Company's
Chief Executive Officer. The Company agreed to pay Ms. Soon her base salary plus
benefits through March 31, 1999. The Company will continue to pay Ms. Soon's
base salary beginning April 1, 1999 and continuing until the earlier of
September 30, 1999 or such time as Ms. Soon obtains employment with another
company or enters into certain consulting arrangements. At the time she ceased
to be employed by the Company Ms. Soon's annual salary was $245,000.
The Committee has considered the potential impact of Section 162(m) of the
Internal Revenue Code of 1986, as amended (the "Code"), and proposed regulations
thereunder (the "Section"). The Section disallows a tax deduction for any
publicly-held corporation for individual compensation exceeding $1 million in
any taxable year for any of the Named Executive Officers, unless such
compensation is performance-based. The Company's policy is to qualify, to the
extent reasonable, its executive officers' compensation for deductibility under
applicable tax laws. However, the Committee believes that its primary
responsibility is to provide a compensation program that will attract, retain
and reward the executive talent necessary to the Company's success.
Consequently, the Committee recognizes that the loss of a tax deduction could be
necessary in some circumstances.
STOCK PERFORMANCE GRAPH
The following graph compares the cumulative total return to stockholders on
the Company's Class A Common Stock from December 24, 1996 through December 31,
1998, to the cumulative total return over such period of (i) The NASDAQ Stock
Market (U. S. Companies) and (ii) the NASDAQ Telecom Index. The information
contained in the performance graph shall not be deemed to be "soliciting
material" or to be "filed" with the SEC, nor shall such information be
incorporated by reference into any future filing under the Securities Act or the
Exchange Act, except to the extent that the Company specifically incorporates it
by reference into such filing.
The graph assumes that $100 was invested on the date of the Company's
initial public offering, December 24, 1996, in the Company's Class A Common
Stock at the initial public offering price of $12.00 per share in each index. No
dividends have been declared or paid on the Company's Class A Common Stock.
Stockholder returns over the period indicated should not be considered
indicative of future stockholder returns.
16
<PAGE>
COMPARISON OF CUMULATIVE TOTAL RETURN AMONG LARSCOM INCORPORATED, THE NASDAQ
COMPOSITE INDEX AND THE NASDAQ TELECOM INDEX SINCE THE DATE OF THE COMPANY'S
INITIAL PUBLIC OFFERING
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
NASDAQ COMPOSITE INDEX NASDAQ TELECOM INDEX LARSCOM INCORPORATED
<S> <C> <C> <C>
12/24/1996 $100.00 $100.00 $100.00
12/31/1996 $99.37 $101.66 $94.79
12/31/1997 $121.91 $150.54 $79.17
12/31/1998 $171.37 $245.83 $12.76
</TABLE>
SECURITY OWNERSHIP
The following table sets forth as of April 5, 1999 (except as set forth in
the footnotes) certain information known to the company with respect to the
beneficial ownership of the Company's Class A Common Stock and Class B Common
Stock by (i) each beneficial owner of more than 5% of the
17
<PAGE>
outstanding shares of each class of Common Stock, (ii) each director of the
Company, (iii) each Named Executive Officer and (iv) all directors and executive
officers as a group.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY OWNED
---------------------------------------------------------------------
NUMBER OF PERCENT OF NUMBER OF PERCENT OF PERCENT OF
CLASS A CLASS A CLASS B CLASS B TOTAL VOTING
SHARES (1) SHARES (2) SHARES (1) SHARES (2) POWER (2)
------------- ---------- ---------- ---------- ------------
<S> <C> <C> <C> <C> <C>
Axel Johnson Inc.(3).................... 10,000 * 10,000,000 100.0% 82.8%
State of Wisconsin Investment
Board(4).............................. 1,450,300 17.4% -- * 3.0
Kopp Investment Advisors, Inc,(5)....... 835,500 10.1 -- * 1.7
Wellington Management Company, LLP(6)... 575,000 6.9 -- * 1.2
Deborah M. Soon......................... 69,022(7) * -- * *
Joseph F. Smorada....................... 39,500 * -- * *
Donald G. Heitt......................... 18,000(8) * -- * *
Harvey L. Poppel........................ 18,000(8) * -- * *
Paul E. Graf............................ 12,500 * -- * *
Paul A. Strudwick....................... 11,693 * -- * *
Amin Pessah............................. 10,500 * -- * *
George M. Donohoe....................... 9,162 * -- * *
Jeffrey W. Reedy........................ 7,239 * -- * *
Donald Green............................ 6,000(9) * -- * *
Bruce D. Horn........................... 3,684 * -- * *
William H. Cory......................... 1,552 * -- * *
Stephen A. Gartner...................... 1,490 * -- * *
Lawrence D. Milligan.................... -- * -- * *
All executive officers and directors as
a group (15 persons).................. 218,342 2.6% -- * *
</TABLE>
- ------------------------
* Less than 1%
(1) The number of shares beneficially owned includes Class A Common Stock and B
Common Stock of which such individual has the right to acquire beneficial
ownership either currently or within 60 days of April 5, 1999, including but
not limited to, upon exercise of an option.
(2) Percentage of beneficial ownership and voting power is based on 8,313,000
shares of Class A Common Stock and 10,000,000 shares of Class B Common
Stock, all of which were outstanding on March 31, 1999. For each individual,
this includes Class A Common Stock of which such individual has the right to
acquire beneficial ownership either currently or within 60 days of April 5,
1999, including, but not limited to, upon the exercise of an option;
however, such Class A Common Stock shall not be deemed outstanding for the
purpose of computing the percentage owned by any other individual.
(3) Based on information provided in a Schedule 13G filed by Axel Johnson with
the SEC on February 12, 1997. The address for Axel Johnson is 300 Atlantic
Street, Stamford CT 06901-0350. The 10,000 shares of Class A Common Stock
are owned of record by Antonia Ax:son Johnson and her spouse. Ms. Johnson is
the ultimate owner of Axel Johnson.
(4) Based on information provided in a Schedule 13G/A filed by The State of
Wisconsin Investment Board with the SEC on February 2, 1999. The address for
The State of Wisconsin Investment Board is P.O. Box 7842, Madison WI 53707.
18
<PAGE>
(5) Based on information provided in a Schedule 13G/A filed by Kopp Investment
Advisors, Inc. with the SEC on February 4, 1999. The address for Kopp
Investment Advisors, Inc. is 7701 France Avenue South, Suite 500, Edina MN
55435.
(6) Based on information provided in a Schedule 13 G/A filed by Wellington
Management Company LLP with the SEC on February 2, 1999. The address for
Wellington Management Company LLP is 75 State Street, Boston, MA 02109.
(7) Includes 54,000 shares issuable upon exercise of options to purchase Larscom
Class A Common Stock that are exercisable within 60 days of April 5, 1999.
(8) Includes 18,000 shares issuable upon exercise of options to purchase Larscom
Class A Common Stock that are exercisable within 60 days of April 5, 1999.
(9) Includes 6,000 shares issuable upon exercise of options to purchase Larscom
Class A Common Stock that are exercisable within 60 days of April 5, 1999.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Under Section 16(a) of the Securities Exchange Act of 1934, the Company's
directors, officers and persons who are directly or indirectly the beneficial
owners of more than 10% of the Common Stock of the Company are required to file
with the SEC within specified monthly and annual due dates, a statement of their
initial beneficial ownership and all subsequent changes in ownership of Common
Stock. Rules of the SEC require such persons to furnish the Company with copies
of all Section 16(a) forms they file. Based solely on a review of such forms,
the Company believes that Rebecca C. Horn was late in filing reports of her
transfer of ownership of the Company's Common Stock.
OTHER MATTERS
The Company knows of no other matters to be brought before the meeting. If
any other matters properly come before the meeting, it is the intention of the
persons named in the accompanying proxy to vote the shares represented as the
Board of Directors may recommend.
THE BOARD OF DIRECTORS
[/S/ BRUCE D. HORN]
Bruce D. Horn
SECRETARY
Dated: April 20, 1999
19
<PAGE>
LARSCOM INCORPORATED
PROXY/VOTING INSTRUCTIONS CARD
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF LARSCOM
INCORPORATED FOR THE ANNUAL MEETING ON MAY 20, 1999
The undersigned appoints Paul E. Graf and Joseph F. Smorada and each of
them, with full power of substitution in each, the proxies of the
undersigned, to represent the undersigned and vote all shares of Larscom
Incorporated Common Stock which the undersigned may be entitled to vote at
the Annual Meeting of Shareholders to be held on May 20, 1999 and at any
adjournment or postponement thereof, as indicated on the reverse side.
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED
HEREIN BY THE UNDERSIGNED SHAREHOLDER. IF NO DIRECTION IS GIVEN, THIS PROXY
WILL BE VOTED FOR THE NOMINEES SET FORTH IN PROPOSAL 1 AND FOR PROPOSAL 2.
(Continued and to be signed on the reverse side.)
LARSCOM INCORPORATED
P.O. Box 11396
NEW YORK, N.Y. 10203-0396
<PAGE>
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" ALL NOMINEES IN ITEM 1 AND
"FOR" ITEM 2.
<TABLE>
<S> <C> <C> <C>
1. Election of Directors FOR all nominees /X/ WITHHOLD AUTHORITY to vote /X/ EXCEPTIONS /X/
listed below for all nominees listed below.
</TABLE>
Nominees: Paul F. Graf, Donald G. Heitt, Harvey L. Poppel, Joseph F. Smorada,
Donald Green, Lawrence D. Milligan
(INSTRUCTIONS: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE, MARK
THE "EXCEPTIONS" BOX AND WRITE THAT NOMINEE'S NAME IN THE SPACE PROVIDED
BELOW.)
Exceptions _____________________________________________________________________
2. To ratify and approve the selection by the Board of Directors of
PricewaterhouseCoopers LLP as independent accountants for the Company for
the fiscal year ending December 31, 1999.
FOR /X/ AGAINST /X/ ABSTAIN /X/
In their discretion the Proxies are authorized to vote upon such other
matters as may properly come before the meeting or any adjournment or
postponement thereof.
CHANGE OF ADDRESS AND/
OR COMMENTS MARK HERE /X/
Please sign exactly as your name appears in the left. When signing as
attorney, executor, administrator, trustee or guardian, please give your full
title. If shares are held jointly, each holder should sign.
Dated: ____________________________________________, 1999
Signature _______________________________________________
_________________________________________________________
Signature
VOTES MUST BE INDICATED
(X) IN BLACK OR BLUE INK. /X/
SIGN, DATE AND RETURN THE PROXY CARD PROMPTLY USING THE ENCLOSED ENVELOPE.
