<PAGE> 1
================================================================================
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
<TABLE>
<S> <C>
Filed by the registrant /x/
Filed by a party other than the registrant / /
Check the appropriate box:
/ /Preliminary proxy statement
/x/Definitive proxy statement / / Confidential, for Use of
/ /Definitive additional materials Commission Only (as permitted
/ /Soliciting material pursuant to Rule 14a-11(c) or Rule 14a-12 by Rule 14a-6(e)(2))
</TABLE>
VERILINK CORPORATION
(Name of registrant as Specified in Its Charter)
VERILINK CORPORATION
(Name of Person(s) Filing Proxy Statement)
Payment of filing fee (Check the appropriate box):
/x/ $125 per Exchange Act Rule 0-11(c)(1)(ii), 14a-6(i)(1) or
14a-6(j)(2) or Item 22(a)(2) of Schedule 14A.
/ / $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and
0-11.
(1) Title of each class to which transaction 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.(1)
--------------------------------------------------------------------
(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:
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(4) Date filed:
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- --------------------------------------------------------------------------------
<PAGE> 2
VERILINK CORPORATION
145 BAYTECH DRIVE
SAN JOSE, CALIFORNIA 95134
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD NOVEMBER 7, 1996
The Annual Meeting of Stockholders (the "Annual Meeting") of Verilink
Corporation (the "Company"), will be held at the Company's offices located at
145 Baytech Drive in San Jose, California on Thursday, November 7, 1996 at 10:00
a.m. Pacific Daylight Time, for the following purposes:
1. To elect one Class I director to serve until the 1997 annual
meeting of stockholders, one Class II director to serve until the 1998
annual meeting of stockholders, and two Class III directors to serve until
the 1999 annual meeting of stockholders and until their respective
successors have been elected or appointed;
2. To ratify and approve an amendment to the Company's Amended and
Restated 1993 Stock Option Plan (the "1993 Option Plan") to increase the
number of shares reserved for issuance thereunder from 3,300,000 shares to
4,050,000 shares;
3. To ratify the appointment of Price Waterhouse LLP as the Company's
independent accountants for fiscal year 1997; and
4. To transact such other business as may properly come before the
Annual Meeting and any adjournment or postponement thereof.
The foregoing matters are described in more detail in the enclosed Proxy
Statement, which is attached and made a part hereof.
The Board of Directors has fixed the close of business on September 11,
1996 as the record date for determining the stockholders entitled to notice of
and to vote at the Annual Meeting and any postponement or adjournment thereof.
WHETHER OR NOT YOU EXPECT TO ATTEND THE MEETING IN PERSON, YOU ARE URGED TO
SIGN, DATE, AND RETURN THE ENCLOSED PROXY CARD AT YOUR EARLIEST CONVENIENCE TO
ENSURE THE PRESENCE OF A QUORUM AT THE ANNUAL MEETING. IF YOU SEND IN YOUR PROXY
AND THEN DECIDE TO ATTEND THE ANNUAL MEETING TO VOTE YOUR SHARES IN PERSON, YOU
MAY STILL DO SO. YOUR PROXY IS REVOCABLE IN ACCORDANCE WITH THE PROCEDURES SET
FORTH IN THE PROXY STATEMENT.
By Order of the Board of Directors,
LOGO
Leigh S. Belden
President, Chief Executive Officer
and Director
San Jose, California
September 27, 1996
<PAGE> 3
MAILED TO STOCKHOLDERS ON OR ABOUT SEPTEMBER 30, 1996
VERILINK CORPORATION
145 BAYTECH DRIVE
SAN JOSE, CALIFORNIA 95134
------------------------
PROXY STATEMENT
GENERAL INFORMATION
This Proxy Statement is furnished in connection with the solicitation by
the Board of Directors of Verilink Corporation, a Delaware corporation (the
"Company"), of proxies in the accompanying form for use in voting at the Annual
Meeting of Stockholders to be held on Thursday, November 7, 1996 at 10:00 a.m.
Pacific Daylight Time, at the Company's offices located at 145 Baytech Drive,
San Jose, California and any adjournment or postponement thereof (the "Annual
Meeting"). The shares represented by the proxies received, properly dated and
executed, and not revoked will be voted at the Annual Meeting.
REVOCABILITY OF PROXIES
Any proxy given pursuant to this solicitation may be revoked by the person
giving it at any time before it is exercised by delivering to the Company a
written notice of revocation or a duly executed proxy bearing a later date, or
by attending the Annual Meeting and voting in person.
SOLICITATION AND VOTING PROCEDURES
The solicitation of proxies will be conducted by mail and the Company will
bear all attendant costs. These costs will include the expense of preparing and
mailing proxy materials for the Annual Meeting and reimbursements paid to
brokerage firms and others for their expenses incurred in forwarding
solicitation material regarding the Annual Meeting to beneficial owners of the
Company's Common Stock. The Company may conduct further solicitation personally,
telephonically or by facsimile through its officers, directors and regular
employees, none of whom will receive additional compensation for assisting with
the solicitation.
The close of business on September 11, 1996 has been fixed as the record
date (the "Record Date") for determining the holders of shares of Common Stock
of the Company entitled to notice of and to vote at the Annual Meeting. As of
the close of business on the Record Date, the Company had approximately
13,147,746 shares of Common Stock outstanding and entitled to vote at the Annual
Meeting. The presence at the Annual Meeting of a majority, or 6,573,874 of these
shares of Common Stock of the Company, either in person or by proxy, will
constitute a quorum for the transaction of business at the Annual Meeting. Each
outstanding share of Common Stock on the Record Date is entitled to one (1) vote
on all matters.
An automated system administered by the Company's transfer agent will
tabulate votes cast by proxy at the Annual Meeting, and an employee of the
Company will tabulate votes cast in person at the Annual Meeting. Abstentions
and broker non-votes are each included in the determination of the number of
shares present and voting, and each is tabulated separately. However, broker
non-votes are not counted for purposes of determining the number of votes cast
with respect to a particular proposal. In determining whether a proposal has
been approved, abstentions are counted as votes against the proposal and broker
non-votes are not counted as votes for or against the proposal.
1
<PAGE> 4
PROPOSAL NO. 1
ELECTION OF DIRECTORS
The number of directors on the Board is currently fixed at five and there
is one vacancy which may be filled at a later date by a majority of the
directors. The Company's Certificate of Incorporation divides the Company's
Board of Directors into three classes designated Class I, Class II and Class
III. The members of each class of directors shall serve staggered three-year
terms. The Board shall be initially composed of one Class I director, one Class
II director and two Class III directors, whose terms will expire upon the
election and qualification of directors at the Annual Meeting of Stockholders to
be held in 1997, 1998 and 1999, respectively. The initial classes shall be
elected at the Annual Meeting. At each subsequent annual meeting of
stockholders, directors will be elected for a full term of three years to
succeed those directors whose terms are expiring.
David L. Lyon has been nominated for election as the initial Class I
director, Howard Oringer has been nominated for election as the initial Class II
director and Leigh S. Belden and Steven C. Taylor have been nominated for
election as the initial Class III directors. In the event any nominee is unable
or unwilling to serve as a nominee, the proxies may be voted for the other
nominee named and for any substitute nominee designated by the present Board of
Directors or the proxy holders to fill such vacancy, or for the other nominee
named without nomination of a substitute. The Board of Directors has no reason
to believe that any of the persons named will be unable or unwilling to serve as
a nominee or as a director if elected.
In voting for directors for each class, each stockholder is entitled to
cast that number of votes equal to the number of shares of Common Stock held by
such stockholder multiplied by the number of directors to be elected to that
certain class of directors, and each stockholder may cumulate and cast all such
votes for a single director nominated to such class, or may distribute such
votes among the number of directors to be elected to such class as such
stockholder sees fit. Votes may be cumulated only for directors to be elected
within each class. The candidates for each class of directors receiving the
highest number of affirmative votes will be elected to such class, up to the
number of directors to be elected to that class. The persons authorized to vote
shares represented by executed proxies in the enclosed form (if authority to
vote for the election of directors is not withheld) will have full discretion
and authority to vote for any or all of the nominees for that certain class of
directors as they may determine or, if authority to vote for a specified
candidate or candidates has been withheld, among those candidates for such class
for whom authority to vote has not been withheld.
Unless marked otherwise, proxies received will be voted FOR the election of
each of the nominees named below to their respective classes. 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 ensure 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.
Certain information about the nominees for Class I, II and III directors is
furnished below:
CLASS I
Dr. Lyon became a Director of the Company in April 1996. In 1987, Dr. Lyon
co-founded Pacific Communications Services, Inc. (PCSI), which is now a wholly
owned subsidiary of Cirrus Logic, Inc. He presently serves as President of PCSI,
a manufacturer of wireless communications equipment for digital cellular, CDPD,
PCS and advanced paging services. Dr. Lyon received a Ph.D. in Electrical
Engineering from the Massachusetts Institute of Technology. Dr. Lyon currently
serves as a member of the Board of Directors of Cirrus Logic, Inc.
CLASS II
Mr. Oringer has been a Director of the Company since August 1987 and
Chairman of the Board of Directors since January 1996. In addition, he has been
the Managing Director of Communications Capital Group, a management consulting
firm, since November 1993. From February 1986 to November 1993,
2
<PAGE> 5
Mr. Oringer was the President, Chief Executive Officer and Chairman of the Board
of Directors of Telesciences, a manufacturer of telecommunications equipment.
Mr. Oringer received a B.E. in Engineering from the Stevens Institute of
Technology, an M.S. in Electrical Engineering from the California Institute of
Technology and an M.B.A. from Santa Clara University.
CLASS III
Mr. Belden co-founded the Company and has served as its President, Chief
Executive Officer and Director since its inception in December 1982. From 1980
to 1982, Mr. Belden was Vice President of Marketing for Cushman Electronics, a
manufacturer of telephone central office and two-way radio test equipment.
Previously, he held various international and domestic sales and marketing
management positions for California Microwave. Mr. Belden received a B.S. in
Electrical Engineering from the University of California at Berkeley and an
M.B.A. from Santa Clara University.
Mr. Taylor co-founded the Company and has served as its Chief Technical
Officer since its inception in December 1982. In addition, Mr. Taylor served as
Chairman of the Board of Directors from the Company's inception until January
1996, at which time he became the Vice Chairman of the Board of Directors.
Previously, Mr. Taylor served as Chief Engineer of Digital Products for
Culbertson Industries and California Microwave. In 1980, Mr. Taylor formed
Telecommunications Consultants, Inc., a consulting firm engaged in the design
and support of digital and analog communications equipment.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE ELECTION OF THE NOMINEES
NAMED.
THE BOARD OF DIRECTORS AND COMMITTEES
Other than Henry L. Tinker, who is the father-in-law of Leigh S. Belden,
there are no family relationships among any of the directors or executive
officers of the Company.
The Company's Board of Directors met 6 times during fiscal 1996. None of
the directors attended fewer than 75% of all the meetings of the Board and those
committees of the Board on which he served. With the exception of Howard
Oringer, who receives a fee of $10,000 per month pursuant to an oral consulting
agreement with the Company, directors of the Company who are not employees of
the Company receive a quarterly fee of $2,650, and all Directors receive a fee
of $1,600 for each Board meeting attended. Non-employee Directors also receive
automatic grants under the Verilink Corporation Amended and Restated 1993 Stock
Option Plan (the "1993 Option Plan") of options to purchase 30,000 shares upon
election and re-election to the Board which options vest in equal annual amounts
over a three-year period following the grant date.
The Audit Committee currently consists of Mr. Oringer and Dr. Lyon. The
Audit Committee recommends to the Board the engagement of the firm of certified
public accountants to audit the financial statements of the Company for the
fiscal year for which they are appointed, and monitors the effectiveness of the
audit effort and the Company's financial and accounting organization and
financial reporting.
The Compensation Committee currently consists of Mr. Oringer and Dr. Lyon.
Its functions are to establish and review the compensation policies applicable
to the Company's executive officers and to administer the 1993 Option Plan and
the Verilink Corporation 1996 Employee Stock Purchase Plan (the "1996 Purchase
Plan").
3
<PAGE> 6
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The following table sets forth certain information known to the Company
with respect to beneficial ownership of the Company's Common Stock as of
September 11, 1996 by (a) each stockholder known by the Company to be the
beneficial owner of more than five percent of the Company's Common Stock, (b)
each director and nominee for director of the Company, (c) each Named Executive
Officer in the Summary Compensation Table below (see "Executive Compensation")
and (d) all current executive officers, directors and nominees for director who
beneficially own shares, as a group.
<TABLE>
<CAPTION>
NUMBER OF PERCENTAGE OF
SHARES SHARES
BENEFICIALLY BENEFICIALLY
NAME OF BENEFICIAL OWNER OWNED(1) OWNED
- -------------------------------------------------------------------- ------------ -------------
<S> <C> <C>
Leigh S. Belden(2).................................................. 3,215,738 24.5%
Steven C. Taylor (3)................................................ 2,331,658 17.7%
TA Associates, Inc.(4).............................................. 706,550 5.4%
Beltech, Inc.(5).................................................... 1,000,000 7.6%
Oliver Corporation(6)............................................... 800,000 6.1%
Howard Oringer...................................................... 206,000 1.6%
Timothy G. Conley................................................... 180,000 1.4%
James G. Regel...................................................... 160,000 1.2%
Henry L. Tinker..................................................... 160,000 1.2%
David L. Lyon....................................................... -- --
All executive officers and directors as a group (11 persons)(7)..... 6,785,396 48.6%
</TABLE>
- ---------------
* Less than 1%
(1) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission. In computing the number of shares
beneficially owned by a person and the percentage ownership of that person,
shares of Common Stock subject to options held by that person that are
currently exercisable or exercisable within 60 days of September 11, 1996
are deemed outstanding. Such shares, however, are not deemed outstanding for
the purposes of computing the percentage ownership of each other person. To
the Company's knowledge, except as set forth in the footnotes to this table
and subject to applicable community property laws, each person named in the
table has sole voting and investment power with respect to the shares set
forth opposite such person's name. Except as otherwise indicated, the
address of each of the persons in this table is as follows: c/o Verilink
Corporation, 145 Baytech Drive, San Jose, California 95134.
(2) Includes (a) 1,493,688 shares owned by Leigh S. Belden, individually, and by
Leigh S. Belden & Deborah Tinker Belden, or their successors, Trustees U/A
Dated 12/09/88; (b) 2,050 shares owned by Baytech Associates, a California
general partnership in which Mr. Belden has a 50% general partner interest;
(c) 720,000 shares owned by trusts for minor children of Mr. Belden; and (d)
1,000,000 shares owned by Beltech Corporation, a Nevada corporation of which
Mr. Belden is a Director and President and the Leigh S. Belden and Deborah
Tinker Belden Trust U/A Dated 12/09/88 is the sole shareholder. Mr. Belden
disclaims beneficial ownership as to 720,000 of these shares.
(3) Includes (a) 1,529,608 shares owned by Steven C. Taylor, individually, and
by Steven C. Taylor and Suzanne E. Taylor, Trustees of Steven and Suzanne
Taylor Living Trust Agreement Dated June 2, 1988; (b) 2,050 shares owned by
Baytech Associates, a California general partnership in which Mr. Taylor has
a 50% general partner interest; (c) 800,000 shares owned by the Oliver
Corporation, a Nevada corporation of which Mr. Taylor is a Director and
President and the Steven and Suzanne Taylor Living Trust Agreement Dated
June 2, 1988 is the sole shareholder.
(4) TA Associates, Inc., High Street Tower, Suite 2500, 125 High Street, Boston,
Massachusetts 02210. Includes (a) 16,848 shares owned by TA Investors; (b)
812,768 shares owned by Advent V Ltd. Partnership; (c) 138,628 shares owned
by Advent Industrial Ltd. Partnership; (d) 11,640 shares owned
4
<PAGE> 7
by TA Associates Atlantic Ltd. Partnership; and (e) 29,472 shares owned by
TA Associates V Ltd. Partnership.
(5) Beltech, Inc., 889 Alder Avenue, Suite 200, Incline Village, NV 89451.
(6) Oliver Corporation, 889 Alder Avenue, Suite 200, Incline Village, NV 89451.
(7) Includes options to purchase 395,000 shares exercisable within 60 days of
September 11, 1996.
PROPOSAL NO. 2
APPROVAL AND RATIFICATION OF AMENDMENT
TO THE COMPANY'S 1993 OPTION PLAN
The Company's stockholders are being asked to act upon a proposal to
approve the action taken by the Board of Directors in September 1996 amending
the Company's 1993 Option Plan to increase the number of shares authorized for
issuance under the 1993 Option Plan by 750,000 shares, from 3,300,000 to an
aggregate of 4,050,000 shares. Ratification of the proposal requires the
affirmative vote of a majority of the shares of Common Stock voting on the
proposal in person or by proxy.
The Board of Directors believes that the attraction and retention of high
quality personnel are essential to the Company's continued growth and success
and that an incentive plan such as the 1993 Option Plan is necessary for the
Company to remain competitive in its compensation practices. In the absence of
an increase in the available shares, additional shares may become unavailable
for future option grants under the 1993 Option Plan, except to the extent that
shares become available upon termination or cancellation of outstanding options.
A general description of the principal terms of the 1993 Option Plan, the
amendment approved by the Board of Directors and the purpose of such amendment
is set forth below. Although the Company believes that the following description
provides a fair summary of the material terms of the 1993 Option Plan, the
description is qualified in its entirety by the text of the 1993 Option Plan,
including the amendment proposed to be approved by the stockholders. Unless
marked otherwise, proxies received will be voted FOR the approval and
ratification of the proposed amendment to the 1993 Option Plan.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE RATIFICATION AND APPROVAL
OF THE AMENDMENT TO THE COMPANY'S 1993 OPTION PLAN.
GENERAL DESCRIPTION OF 1993 OPTION PLAN.
The following summary of the 1993 Option Plan, including the proposed
amendment, is qualified in its entirety by the specific language of the 1993
Option Plan, a copy of which is available to any stockholder upon request.
The Company's 1993 Option Plan was initially approved by the Board of
Directors in March 1993 and by the stockholders in November 1993. The purpose of
the 1993 Option Plan is to create additional incentives for the Company's
employees (including employees of any subsidiaries of the Company) and others
who perform substantial services to the Company to promote the financial success
and progress of the Company by providing an opportunity to purchase shares of
the Company's Common Stock pursuant to the exercise of options granted under the
1993 Option Plan. The Company may grant options that qualify as incentive stock
options under Section 422 of the Internal Revenue Code of 1986, as amended (the
"Code"), and nonqualified stock options. Incentive stock options may be granted
to employees (including officers and directors who are employees) of the
Company, and employees who hold certain outstanding options issued under the
Company's 1983 Stock Option Plan and 1989 Directors Stock Option Plan (the
"Prior Plans"), both of which Prior Plans have been terminated. Nonqualified
stock options may be granted to employees, officers, directors, independent
contractors and consultants of the Company and holders of certain outstanding
options issued under the Prior Plans. In April 1996, an additional 500,000
shares of Common Stock were reserved for issuance under the 1993 Option Plan
making the total number of shares authorized in the 1993 Option Plan 3,300,000,
of which, at June 30, 1996, 701,751 were available for future grant.
5
<PAGE> 8
In April 1996, the 1993 Option Plan was amended to provide for automatic
nonqualified option grants of 30,000 shares ("Automatic Grants") to Directors
who are not officers of the Company ("Non-Employee Directors") upon each
Non-Employee Director's election and re-election to the Board of Directors.
Automatic grants will vest in equal annual amounts over a three-year period
following the date of grant. Non-Employee Directors who are elected between
annual meetings will receive a ratable Automatic Grant. The exercise price of
options granted to Non-Employee Directors will be the fair market value on the
date of grant. Non-Employee Directors may not receive grants under the 1993
Option Plan other than Automatic Grants.
The Board of Directors or a committee designated by the Board of Directors
is authorized to administer the 1993 Option Plan in a manner that complies with
Rule 16b-3 under the Securities and Exchange Act of 1934, as amended (the
"Exchange Act"). Currently, the 1993 Option Plan is being administered by the
Compensation Committee of the Board of Directors, which determines which
eligible individuals are granted options and the terms of such options,
including the exercise price, number of shares subject to the option and the
vesting and exercisability thereof; provided, the maximum term of an incentive
stock option granted under the 1993 Option Plan may not exceed 10 years.
The exercise price of an incentive stock option granted under the 1993
Option Plan must equal at least 100% of the fair market value of the subject
stock on the grant date and the exercise price of all nonqualified stock options
must equal at least 85% of the fair market value of the subject stock on the
grant date. With respect to any participant who owns more than 10% of the
combined voting power of all classes of stock of the Company, the exercise price
of any option granted must equal at least 110% of the fair market value on the
grant date and, if the option granted is an incentive stock option, the maximum
term of such incentive stock option may not exceed 5 years. The aggregate fair
market value on the date of grant of the stock for which incentive stock options
are exercisable for the first time by an employee of the Company or an affiliate
during any calendar year may not exceed $100,000.
Nonqualified stock options and incentive stock options granted under the
1993 Option Plan are immediately exercisable; however, the shares of Common
Stock issued upon exercise of such options typically vest in the optionee at the
rate of 25% on the date one year after the grant date, and 1/48th each month
thereafter, provided the optionee remains continuously employed by the Company.
Upon cessation of employment for any reason, the Company has the option to
repurchase all, but not some, of any unvested shares of Common Stock issued upon
exercise of an option under the 1993 Option Plan, within 60 days following the
date of cessation of employment at a repurchase price equal to the exercise
price of such shares.
Nonqualified and incentive stock options granted under the 1993 Option Plan
are not transferable other than by will or the laws of descent or distribution,
and each option that has not yet expired is exercisable only by the recipient
during such person's lifetime, or for 12 months thereafter by the person or
persons to whom the option passes by will or the laws of descent or
distribution. The 1993 Option Plan may be amended at any time by the Board of
Directors, although certain amendments require stockholder approval. The 1993
Option Plan will terminate on March 1, 2003 unless earlier terminated by the
Board of Directors.
PROPOSED AMENDMENT
Increase in Available Shares. The Board of Directors believes that the
attraction and retention of high quality personnel are essential to the
Company's continued growth and success and that an incentive plan such as the
1993 Option Plan is necessary for the Company to remain competitive in its
compensation practices. As of the Record Date, there were remaining 701,751
shares authorized and available for issuance under the 1993 Option Plan. In the
absence of an increase in the available shares, after the issuance of the
remaining authorized shares, no additional shares will be available for future
option grants under the 1993 Option Plan, except to the extent that shares
become available upon terminations or cancellation of outstanding options. For
these reasons, the Board of Directors has approved an amendment to the 1993
Option Plan to increase the number of shares of Common Stock of the Company
available for issuance thereunder by 750,000 shares, from 3,300,000 to an
aggregate of 4,050,000 shares.
6
<PAGE> 9
EXECUTIVE COMPENSATION
COMPENSATION TABLES
The following tables set forth certain information concerning compensation
of and stock options held by the Company's Chief Executive Officer and each of
the four other most highly compensated executive officers of the Company
(collectively, the "Named Executive Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
------------------------------------ ------------
OTHER SECURITIES
NAME AND PRINCIPAL FISCAL ANNUAL UNDERLYING ALL OTHER
POSITION YEAR SALARY BONUS(1) COMPENSATION OPTIONS COMPENSATION
- -------------------------- ------ -------- -------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Leigh S. Belden........... 1996 $245,000 $ -- $ 50,000(2) -- 86,300(3)
President, Chief
Executive 1995 245,000 -- 80,000(2) -- 123,000(3)
Officer and Director 1994 245,000 865,000 97,500(2) -- 146,000(3)
Steven C. Taylor.......... 1996 245,000 -- 45,400(2) -- 83,800(3)
Chief Technical Officer, 1995 245,000 -- 39,000(2) -- 78,000(3)
Vice Chairman of the 1994 245,000 865,000 32,700(2) -- 77,200(3)
Board of Directors
James G. Regel............ 1996 188,000 228,500 -- -- 37,600(4)
Vice President, Sales
and 1995 150,000 50,000 -- -- 38,300(4)
Marketing 1994 148,000 125,000 -- -- 25,700(4)
Henry L. Tinker........... 1996 179,000 27,000 -- -- 28,700(4)
Vice President,
Operations 1995 179,000 10,000 -- -- 27,300(4)
1994 179,000 84,000 -- -- 22,900(4)
Timothy G. Conley......... 1996 139,615 221,000 -- -- 30,431(4)
Vice President, Finance 1995 130,000 20,000 -- -- 25,750(4)
1994 128,029 102,700 -- -- 28,117(4)
</TABLE>
- ---------------
(1) Includes bonus amounts in the year earned, rather than in the year in which
each such bonus amount was paid or is to be paid.
(2) This represents an amount paid by the Company as reimbursement for the
payment of income taxes.
(3) This amount primarily represents Board of Directors' fees, life insurance
premiums, retirement benefits, reimbursement of medical expenses, and auto
lease and operating expenses, paid by the Company.
(4) This amount primarily represents auto lease and operating expenses, 401(k)
Plan matching contributions and reimbursement of medical expenses paid by
the Company.
7
<PAGE> 10
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS AT IN-THE-MONEY OPTIONS AT
SHARES FISCAL YEAR END(#) FISCAL YEAR END($)(2)
ACQUIRED ON VALUE --------------------------- ---------------------------
NAME EXERICSE(#) REALIZED(1)($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- -------------------------- ----------- -------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Leigh S. Belden........... -- -- -- -- -- --
Steven C. Taylor.......... -- -- -- -- -- --
James G. Regel............ 160,000 60,000 -- -- -- --
Henry L. Tinker........... 160,000 60,000 -- -- -- --
Timothy G. Conley......... 180,000 67,500 -- -- -- --
</TABLE>
- ---------------
(1) The value realized upon the exercise of stock options represents the
positive spread between the exercise price of stock options and the fair
market value, as determined by the Company's Board of Directors, of the
shares subject to such options on the exercise date.
(2) The value of "in-the-money" stock options represents the positive spread
between the exercise price of options and $25.50, the price per share of the
underlying shares of Common Stock, as reported on the Nasdaq National Market
on June 28, 1996.
REPORT OF THE COMPENSATION COMMITTEE
Notwithstanding anything to the contrary set forth in any of the Company's
previous filings under the Securities Act of 1933, as amended, or the Securities
Exchange Act of 1934, as amended, that might incorporate future filings,
including this Proxy Statement, in whole or in part, the following report and
the Performance Graph which follows shall not be deemed to be incorporated by
reference into any such filings.
In determining the officers' compensation levels, the Compensation
Committee generally considers factors such as competitive compensation levels
for officers of other high technology companies of similar revenues,
profitability and growth rates among other factors.
The Compensation Committee is currently composed of Mr. Oringer and Dr.
Lyon. In addition to administering the 1993 Option Plan and the 1996 Purchase
Plan, the Compensation Committee is authorized by the Board, among other things,
to establish and review annually the general compensation policies applicable to
the Company's executive officers, including the relationship of Company
financial performance to executive compensation and the bases for the Chief
Executive Officer's compensation during each fiscal year. The Compensation
Committee is also authorized to review and approve the level of compensation
paid to the Chief Executive Officer and the Company's other executive officers
during each fiscal year.
No member of the Compensation Committee is a former or current officer or
employee of the Company.
Compensation Policy Regarding Deductibility. The Company is required to
disclose its policy regarding qualifying executive compensation for
deductibility under Section 162(m) of the Code which provides that, for purposes
of the regular income tax and the alternative minimum tax, the otherwise
allowable deduction for compensation paid or accrued with respect to a covered
employee of a publicly-held corporation is limited to no more than $1 million
per year. For the fiscal year ended June 30, 1996, no executive officer of the
Company
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<PAGE> 11
received $1 million in total compensation, nor does the Company anticipate that
compensation payable to any executive officer will exceed $1 million for fiscal
1997.
Compensation Committee
Howard Oringer
David L. Lyon, Ph.D.
September 27, 1996
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<PAGE> 12
PERFORMANCE GRAPH
The following chart compares the cumulative total stockholder return on the
Company's Common Stock during 1996 since the date of the Company's initial
public offering on June 10, 1996 (the "IPO") through September 24, 1996, with
the cumulative total return on The Nasdaq Stock Market U.S. Index and the
Hambrecht & Quist ("H&Q") Technology Index during the same period. The
comparison assumes $100 was invested on June 10, 1996 in the Company's Common
Stock and in each of the foregoing indices, and assumes reinvestment of
dividends, if any. The stock price performance shown on the graph below is not
necessarily indicative of future price performance.
<TABLE>
<CAPTION>
Measurement Period H&Q Tech-
(Fiscal Year Covered) Verilink Nasdaq nology Index
<S> <C> <C> <C>
6/10 100.00 100.00 100.00
6/28 159.38 96.34 94.88
7/31 162.50 87.85 85.84
8/30 160.94 92.80 90.93
9/24 167.97 98.80 100.67
</TABLE>
10
<PAGE> 13
COMPENSATION COMMITTEE INTERLOCKS
AND
INSIDER PARTICIPATION
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION IN COMPENSATION
DECISIONS
During fiscal year 1996, the Board of Directors established levels of
compensation for the Company's executive officers. During fiscal year 1997, the
Compensation Committee of the Board of Directors will establish such
compensation levels. Mr. Oringer and Dr. Lyon currently serve as members of the
Compensation Committee.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In September 1993, the Company and Leigh S. Belden, President, Chief
Executive Officer and Director of the Company, entered into a Common Stock
Purchase Agreement providing for the purchase by Mr. Belden of 1,600,000 shares
of the Company's Common Stock in exchange for a promissory note in the amount of
$800,000 issued by Mr. Belden in favor of the Company. Mr. Belden's promissory
note bears interest at the annual rate of 5%, with principal and accrued
interest payable in full on or before September 16, 1998, and was originally
secured by 2,900,000 shares, of Common Stock of the Company held by Leigh S.
Belden and Deborah Tinker Belden, Trustees U/A Dated December 9, 1988. Recourse
under Mr. Belden's promissory note was originally limited to the 2,900,000
pledged shares, and Mr. Belden is not personally liable under the promissory
note. In December 1995, the Company approved the transfer, free of any security
interest, of 1,000,000 shares of Common Stock held by Leigh S. Belden and
Deborah Tinker Belden, Trustees U/A Dated December 9, 1988, to Beltech, Inc., a
Nevada corporation of which the Leigh S. Belden and Deborah Tinker Belden Trust
U/A Dated 12/09/88 is the sole shareholder; the 1,000,000 shares transferred to
Beltech, Inc. free of any security interest had been subject to the Company's
security interest under Mr. Belden's promissory note. Subsequent to the
Company's initial public offering in June 1996, the number of shares subject to
the security interest was further reduced to 80,000. In connection with their
sales of shares in the Company's initial public offering, Mr. Belden and Steven
C. Taylor, Chief Technical Officer and Director of the Company, individually
repaid the Company in full $577,000 and $152,000, respectively, that each owed
the Company for personal advances beginning in November 1994.
In November 1995 and January 1996, Henry L. Tinker and James G. Regel each
issued a promissory note in the amount of $80,000 in favor of the Company to
finance their respective exercises of options to purchase 160,000 shares of
Common Stock of the Company, at an exercise price of $.50 per share, under the
1993 Option Plan. Mr. Tinker's promissory note bears interest at the annual rate
of 5%, with principal and accrued interest payable in full on or before November
16, 2000, and is secured by shares of Common Stock of the Company and real
property owned by Mr. Tinker. Mr. Regel's promissory note also bears interest at
an annual rate of 5%, with principal and accrued interest payable in full on or
before January 1, 2001, and is secured by shares of Common Stock of the Company
and an investment account owned by Mr. Regel. Additionally, in November 1995 and
January 1996, Timothy G. Conley issued promissory notes in the amounts of
$10,000 and $80,000, respectively, to finance his exercises of options to
purchase 20,000 and 160,000 shares of Common Stock of the Company, at an
exercise price of $.50 per share, pursuant to the 1993 Option Plan. Mr. Conley's
promissory notes bear interest at an annual rate of 5% and are payable in full
on or before November 16, 2000 and January 2, 2001, respectively, and are
secured by shares of Common Stock of the Company and up to $45,000 against the
residence of Mr. Conley.
In June 1996, Mr. Conley and Mr. Regel, pursuant to identical Executive
Incentive Compensation Agreements with the Company, each received a performance
incentive payment of approximately $200,000, based upon the attainment by the
Company of an operating profit of at least $500,000 in fiscal 1996.
In January 1996, Howard Oringer, Chairman of the Company's Board of
Directors, issued the Company a promissory note in the amount of $100,000 to
finance his exercise of options to purchase 200,000 shares of Common Stock of
the Company at an exercise price of $0.50 per share pursuant to the 1993 Option
Plan. Such promissory note bears interest at an annual rate of 5% and is secured
by the shares acquired and, up to
11
<PAGE> 14
$50,000, by certain real property owned by Mr. Oringer. In fiscal 1996, Mr.
Oringer received $120,000 in his capacity as consultant to the Company. In
addition, Mr. Oringer received reimbursement of Company-related expenses in the
amount of $43,425 for fiscal 1996. The Company currently pays a fee of $10,000
per month to Mr. Oringer pursuant to an oral consulting agreement, under which
Mr. Oringer provides part-time consulting services to the Company in the areas
of general business advice, strategic planning, sales and marketing strategy,
and financial advisory services.
The Company leases its facility located at 145 Baytech Drive in San Jose,
California from Baytech Associates, a California general partnership in which
Leigh S. Belden and Steven C. Taylor are the two partners, each with a fifty
percent partnership interest. The Lease Agreement between the Company and
Baytech Associates was entered into in February 1986 and expires in April 2001.
The Company believes this lease was made on terms that are no less favorable to
the Company than would have been obtained from unaffiliated third parties. The
Company paid Baytech Associates a total of $826,440 in lease payments in fiscal
1996.
OPTION GRANTS
Upon joining the Board of Directors in April 1996, Dr. Lyon received from
the Company an option for 40,000 shares of Common Stock. No other options to
purchase shares of Common Stock were granted to Directors or officers of the
Company from June 30, 1995 to June 30, 1996. See "Executive Compensation --
Option Grants in Last Fiscal Year."
PROPOSAL NO. 3
RATIFICATION OF APPOINTMENT OF INDEPENDENT ACCOUNTANTS
Price Waterhouse LLP has served as the Company's independent accountants
since the Company's inception and has been recommended to the Board of Directors
as the Company's independent accountants for fiscal year 1997. In the event that
ratification of this selection of accountants is not approved by a majority of
the shares of Common Stock voting at the Annual Meeting in person or by proxy,
management will review its future selection of accountants. Unless marked to the
contrary, proxies received will be voted FOR ratification of the appointment of
Price Waterhouse LLP as the independent accountants for the current fiscal year.
Representatives of Price Waterhouse LLP are expected to be present at the
Annual Meeting with the opportunity to make a statement, if they desire to do
so, and they are expected to be available to respond to appropriate questions.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR RATIFICATION OF THE
APPOINTMENT OF PRICE WATERHOUSE LLP AS THE COMPANY'S INDEPENDENT ACCOUNTANTS FOR
FISCAL YEAR 1997.
STOCKHOLDER PROPOSALS
To be considered for presentation to the annual meeting of the Company's
stockholders to be held in 1997 and included in the Company's proxy statement
relating thereto, a stockholder proposal must be received by Dannelle M. Emmett,
Secretary, Verilink Corporation, 145 Baytech Drive, San Jose, California, 95134
no earlier than August 9, 1997 and no later than September 8, 1997.
The Board of Directors does not have a nominating committee or a committee
performing the functions of a nominating committee. The Company's Certificate of
Incorporation (the "Certificate") also establishes an advance notice procedure
for bringing business before an annual meeting of stockholders and for
nominating (other than by or at the direction of the Board of Directors)
candidates for election as directors. To be timely, notice of nominations or
other business to be brought before an annual meeting must be received by the
Secretary of the Company, at the address set forth above, not earlier than
ninety nor later than sixty days prior to the first anniversary of the preceding
year's annual meeting or, if the date of the annual meeting is advanced by more
than thirty days or delayed by more than sixty days from such anniversary, such
notice must be received not earlier than ninety days prior to such annual
meeting and not later than the later of (1) the
12
<PAGE> 15
sixtieth day prior to the annual meeting or (2) the tenth day following the date
on which notice of the date of the annual meeting was mailed or public
disclosure thereof was made, whichever occurs first. For purposes of calculating
the notice period for the 1997 annual meeting, the first anniversary of the
Company's 1996 annual meeting is November 7, 1997. The Certificate also provides
that notice of nomination of a candidate for director shall include certain
information with respect to a proposed nominee, including (without limitation)
information as to such nominee's business background, relationships with
stockholders and certain other parties, and share ownership in the Company.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires the Company's officers,
directors and persons who own more than ten percent of the Company's Common
Stock (collectively, "Reporting Persons") to file reports of ownership and
changes in ownership with the SEC and the Nasdaq National Market. Reporting
Persons are required by SEC regulations to furnish the Company with copies of
all Section 16(a) forms they file.
Based solely on its review of the copies of such reports received or
written representations from certain Reporting Persons that no Forms 5 were
required, the Company believes that, during fiscal 1996, all reporting persons
complied with all applicable filing requirements.
Solicitation Expenses. The expense of printing and mailing proxy material
will be borne by the Company. In addition to the solicitation of proxies by
mail, solicitation may be made by certain directors, officers and other
employees of the Company by personal interview, telephone or facsimile. No
additional compensation will be paid for such solicitation. The Company will
request brokers and nominees who hold stock in their names to furnish proxy
material to beneficial owners of the shares and will reimburse such brokers and
nominees for their reasonable expenses incurred in forwarding solicitation
material to such beneficial owners.
Other Matters. The Board of Directors knows of no other business which
will be presented to the Annual Meeting. If any other business is properly
brought before the Annual Meeting, it is intended that proxies in the enclosed
form will be voted in respect thereof in accordance with the judgments of the
persons voting the proxies.
It is important that the proxies be returned promptly and that your shares
be represented.
Stockholders are urged to fill in, sign and promptly return the
accompanying form in the enclosed envelope.
By Order of the Board of Directors
LOGO
Leigh S. Belden
President, Chief Executive Officer
and Director
September 27, 1996
San Jose, California
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<PAGE> 16
APPENDIX
VERILINK CORPORATION
AMENDED AND RESTATED
1993 STOCK OPTION PLAN
1. Establishment, Purpose and Definitions.
(a) There is hereby established the Amended and Restated 1993 Stock
Option Plan (the "Plan") of Verilink Corporation (the "Adopting Company"). The
Adopting Company along with any successor corporation to the Adopting Company
and any present or future parent or subsidiary corporations of the Adopting
Company or such successor corporation shall be collectively referred to as the
"Company." For the purposes of the Plan, a parent corporation and a subsidiary
corporation shall be as defined in sections 424(e) and 424(f) of the Internal
Revenue Code of 1986, as amended (the "Code").
(b) The purpose of the Plan is to create additional incentive for
eligible individuals (as defined in Section 4 below) to promote the financial
success and progress of the Company. The Plan provides employees, including
officers and directors who are employees, of the Company, and holders of certain
outstanding options issued under the Verilink Corporation 1983 Stock Option Plan
or 1989 Officers and Directors Stock Option Plan (the "Prior Plans") an
opportunity to purchase shares of Stock pursuant to options which may qualify as
incentive stock options under Section 422 of the Code (referred to as "incentive
stock options"). The Plan also provides employees, officers, directors,
independent contractors and consultants of the Company and holders of certain
outstanding options issued under the Prior Plans an opportunity to purchase
shares of Stock pursuant to options which are not described in Section 422 of
the Code (referred to as "nonqualified options").
2. Administration.
(a) The Plan shall be administered by the Board of Directors of the
Company (the "Board"). The Board may delegate the responsibility for
administering the Plan to a committee (the "Committee") under such terms and
conditions as the Board shall determine. If the Company becomes subject to
Section 16 of the Securities Exchange Act of 1934, as amended (the "Act") and
the rules promulgated thereunder, the Committee shall consist of two or more
members of the Board or such lesser number of members of the Board as permitted
by Rule 16b-3 promulgated under the Act ("Rule 16b-3"). Except as permitted by
Rule 16b-3, none of the members of the Committee shall receive, while serving on
the Committee, a grant or award of equity securities under (i) the Plan or (ii)
any other plan of the Company under which the participants are entitled to
acquire Stock (including restricted stock), stock options, stock bonuses,
related rights or stock appreciation rights of the Company, other than pursuant
to the grant of automatic options provided in Section 7, below, and pursuant to
transactions in any such other plan which do not disqualify a director from
being a disinterested person under Rule 16b-3. The limitations set forth in this
Section 2(a) shall automatically incorporate any additional requirements that
may in the future be necessary for the Plan to comply with Rule 16b-3. Members
of the Committee shall serve at the pleasure of the Board. The Committee shall
select one of its members as chairman, and shall hold meetings at such times and
places as it may determine. A majority of the Committee shall constitute a
quorum and acts of the Committee at which a quorum is present, or acts reduced
to or approved in writing by all the
1
<PAGE> 17
members of the Committee, shall be the valid acts of the Committee. If the Board
does not delegate administration of the Plan to the Committee, then each
reference in this Plan to "the Committee" shall be construed to refer to the
Board.
(b) Except for options granted to Non-Employee Directors pursuant to
Section 7, the Committee shall determine which eligible individuals (as defined
in Section 4, below) shall be granted options under the Plan, the timing of such
grants, the terms thereof (including any restrictions on the Stock), and the
number of shares subject to such options.
(c) Except for options granted to Non-Employee Directors pursuant to
Section 7, the Committee may amend the terms of any outstanding option granted
under this Plan, but any amendment which would adversely affect the Optionee's
rights under an outstanding option shall not be made without the Optionee's
written consent. The Committee may, with the Optionee's written consent, cancel
any outstanding stock option or accept any outstanding stock option in exchange
for a new option.
(d) The Committee shall have the sole authority, in its absolute
discretion to adopt, amend, and rescind such rules and regulations as, in its
opinion, may be advisable for the administration of the Plan, to construe and
interpret the Plan, the rules and the regulations, and the instruments
evidencing options or Stock granted under the Plan and to make all other
determinations deemed necessary or advisable for the administration of the Plan.
All decisions, determinations and interpretations of the Committee shall be
binding on all participants. Notwithstanding the foregoing, the Committee shall
not exercise any discretionary functions with respect to options granted to
Non-Employee Directors pursuant to Section 7.
3. Stock Subject to the Plan.
(a) An aggregate of not more than three million three hundred
thousand (3,300,000) shares of Stock shall be available for the grant of stock
options under the Plan. If an option is surrendered (except surrender for shares
of Stock) or for any other reason ceases to be exercisable in whole or in part,
the shares which were subject to such option but as to which the option had not
been exercised shall continue to be available under the Plan. Any Stock which is
retained by the Company upon exercise of an option in order to satisfy the
exercise price for such option or any withholding taxes due with respect to such
option exercise shall be treated as issued to the Optionee and will thereafter
not be available under the Plan.
(b) If there is any change in the Stock through merger,
consolidation, reorganization, recapitalization, reincorporation, stock split,
stock dividend (in excess of two percent) or other change in the corporate
structure of the Company, appropriate adjustments shall be made by the Committee
in order to preserve but not to increase the benefits to the individual, the
number and kind of shares and the price per share subject to outstanding options
and to adjust the number of shares which have been authorized for the grant of
stock options under the Plan but as to which no options have yet been granted or
which have been returned to the Plan upon cancellation or expiration of an
option.
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<PAGE> 18
4. Eligible Individuals.
(a) Individuals who shall be eligible to have granted to them the
options provided for by the Plan (other than pursuant to Section 7) shall be
such employees, officers, directors, independent contractors and consultants of
the Company as the Committee, in its discretion, shall designate from time to
time. Notwithstanding the foregoing, only employees of the Company (including
officers and directors who are bona fide employees) shall be eligible to receive
incentive stock options. Except for grants pursuant to Section 7, eligible
individuals shall not include Non-Employee Directors.
(b) Individuals who hold unexercised incentive stock options under
the Prior Plans and are employees of the Company shall be eligible to receive
incentive stock options to purchase the same number of shares of Stock as the
number of shares subject to their unexercised incentive stock options issued
under the Prior Plans in substitution for such Prior Plan Options. Individuals
who hold unexercised nonqualified stock options and are eligible individuals
under Section 4(a) above shall be eligible to receive nonqualified stock options
to purchase the same number of shares of Stock as the number of shares subject
to their unexercised nonqualified options issued under the Prior Plans in
substitution for such Prior Plan Options.
5. The Option Price. The exercise price of the Stock covered by each
incentive Stock option shall be not less than the per share fair market value of
such Stock on the date the option is granted. Except as provided in Section 7,
the exercise price of the Stock covered by each nonqualified stock option shall
be as determined by the Committee, but shall not be less than 85% of the fair
market value of such stock on the date the option is granted. Notwithstanding
the foregoing, in the case of an incentive stock option granted to a person
possessing more than ten percent of the combined voting power of the Company,
the exercise price shall be not less than 110 percent of the fair market value
of the Stock on the date the option is granted. The exercise price of an option
shall be subject to adjustment to the extent provided in Section 3(b), above.
6. Terms and Conditions of Options.
(a) Each option granted pursuant to the Plan will be evidenced by a
written Stock Option Agreement executed by the Company and the person to whom
such option is granted. Options received under the Plan in substitution for
unexercised options received under the Prior Plans will be evidenced by a
written substitution agreement executed by the Company and the person to whom
that option is granted.
(b) The Committee shall determine the term of each option granted
under the Plan; provided, however, that (i) the term of an incentive stock
option shall not be for more than 10 years, (ii) in the case of an incentive
stock option granted to a person possessing more than ten percent of the
combined voting power of the Company, the term shall be for no more than five
years, and (iii) the term of an option granted pursuant to Section 7 shall be
for ten years. Options received under the Plan in substitution for options
received under the Prior Plans will have a new term as determined by the
Committee subject to the limitations described in this Section 6(b) rather than
continuing the term remaining on the options granted under the Prior Plans.
Provided, however, that for incentive stock options granted in substitution for
options under Prior Plans, the term under the original option plus the term
under the substituted option cannot exceed 10 years, and, in the case of a
person possessing more than ten percent of the combined voting power of the
Company, the
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<PAGE> 19
term under the original incentive stock option plus the term under the
substituted incentive stock option cannot exceed five years.
(c) In the case of incentive stock options, the aggregate fair
market value (determined as of the time such option is granted) of the Stock
with respect to which incentive stock options are exercisable for the first time
by an eligible employee in any calendar year (under this Plan and any other
plans of the Company) shall not exceed $100,000. In the event an Optionee
receives an option intended to be an incentive stock option which exceeds the
fair market value limitation, the option shall be treated as a nonqualified
option with respect to so much of the Stock subject thereto as exceeds that
limitation.
(d) Except for grants to Non-Employee Directors pursuant to Section
7, which shall be granted on the form of Stock Option Agreement attached hereto
as Exhibit A, the Stock Option Agreement may contain such other terms,
provisions, and conditions as may be determined by the Committee. If an option,
or any part thereof, is intended to qualify as an incentive stock option, the
Stock Option Agreement shall contain those terms and conditions which are
necessary to so qualify it.
7. Stock Options for Non-Employee Directors.
(a) All grants of options pursuant to this Section 7 shall be
automatic and nondiscretionary and shall be made strictly in accordance with the
provisions of this Section 7. No person shall have any discretion to select
which Non-Employee Directors shall be granted options or to determine the number
of shares of Stock to be covered by options granted to Non-Employee Directors,
the timing of such option grants or the exercise price thereof.
(b) An option to purchase thirty thousand (30,000) shares of Stock
shall be granted immediately following each annual meeting of the Company's
stockholders to each director who is not an officer of the Company
("Non-Employee Director") who was re-elected as a Non-Employee Director at such
annual meeting and who has not otherwise received any prior automatic option
grants under this Section 7 during the two immediately preceding calendar years;
provided, however, that a grant to a Non-Employee Director who then holds an
option that is not fully vested shall be adjusted so that options to acquire no
more than ten thousand (10,000) shares of Stock shall vest in any year pursuant
to Section 7(d). Each such grant shall be made as of the date of the annual
stockholders' meeting in question. In the event a Non-Employee Director shall be
appointed or elected to the Board other than at the annual stockholders'
meeting, such Non-Employee Director shall be entitled to a ratable grant as of
the date of his or her election or appointment to the Board. If any option
ceases to be exercisable in whole or in part, the shares which were subject to
such option but as to which the option had not been exercised shall continue to
be available under the Plan. All options granted to Non-Employee Directors shall
be nonqualified stock options.
(c) The exercise price per share of Stock covered by each option
shall be the per-share fair market value of the Stock on the date the option is
granted. The exercise price of an option granted under the Plan shall be subject
to adjustment to the extent provided in Section 3(b) hereof.
4
<PAGE> 20
(d) Each option shall vest and become exercisable as to ten
thousand (10,000) of the shares covered thereby on the anniversary of the date
of grant such that the option will be fully exercisable three (3) years after
its date of grant.
8. Use of Proceeds. Cash proceeds realized from the issuance of Stock
under the Plan shall constitute general funds of the Company.
9. Amendment, Suspension, or Termination of the Plan.
(a) The Board may at any time amend, suspend or terminate the Plan
as it deems advisable; provided that such amendment, suspension or termination
complies with all applicable requirements of state and federal law, including
any applicable requirement that the Plan or an amendment to the Plan be approved
by the Company's stockholders, and provided further that, except as provided in
Section 3(b) above, the Board shall in no event amend the Plan in the following
respects without the consent of the stockholders then sufficient to approve the
Plan in the first instance:
(i) To increase the maximum number of shares subject to
incentive stock options issued under the Plan; or
(ii) To change the designation or class of persons eligible to
receive incentive stock options under the Plan.
(b) No option may be granted under the Plan during any suspension
or after the termination of the Plan, and no amendment, suspension or
termination of the Plan shall, without the affected individual's consent, alter
or impair any rights or obligations under any option previously granted under
the Plan. The Plan shall terminate with respect to the grant of incentive stock
options on March 1, 2003, unless previously terminated by the Board pursuant to
this Section 9.
(c) Notwithstanding the provisions of Sections 9(a) and 9(b),
above, the provisions set forth in Section 7 of the Plan (and any other sections
of the Plan that affect the formula award terms of option grants to Non-Employee
Directors required to be specified in the Plan by Rule 16b-3) shall not be
amended periodically and in no event more than once every six months, other than
to comport with changes to the Code, the Employee Retirement Income Security Act
of 1974, as amended or any applicable rules and regulations thereunder.
10. Assignability. To the extent required by Rule 16b-3, no option
granted pursuant to this Plan shall be transferable by the holder except by
operation of law or by will or the laws of descent and distribution; provided,
that, if Rule 16b-3 is amended after the date of the Board's adoption of this
amendment to the Plan to permit broader transferability of options under that
Rule, (i) options granted under Section 7 to Non-Employee Directors shall be
transferable to the fullest extent permitted by Rule 16b-3 as so amended, (ii)
any other option shall be transferable to the extent provided in the option
agreement covering the option, and the Committee shall have discretion to amend
any such outstanding option to provide for broader transferability of the option
as the Committee may authorize within the limitations of Rule 16b-3.
Notwithstanding the foregoing, if required by the Code, each incentive stock
option under the Plan shall be transferable by the optionee only by will or the
laws of descent and distribution, and, during the optionee's lifetime, shall be
exercisable only by the optionee. In the event of any Rule 16b-3 permitted
transfer
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<PAGE> 21
of an option hereunder, the transferee shall be entitled to exercise the option
in the same manner and only to the same extent as the optionee (or his personal
representative or the person who would have acquired the right to exercise the
option by bequest or intestate succession) would have been entitled to exercise
the option under Sections 6, 7 and 13 had the option not been transferred.
11. Provision of Information. The Company shall provide to each
Optionee, during any period for which said Optionee has one or more options
granted pursuant to the Plan outstanding, copies of annual financial statements
of the Company.
12. Transfer of Company's Rights. In the event the Company assigns to a
third person, other than by operation of law, any of the Company's rights to
repurchase any stock acquired on the exercise of an option, the assignee shall
pay to the Company the value of such right as determined by the Committee in the
Committee's sole discretion. Such consideration shall be in such form,
including, without limitation, the performance of future services, as the
Committee shall determine in the Committee's sole discretion.
13. Payment Upon Exercise of Options.
(a) Payment of the purchase price upon exercise of any option
granted under this Plan shall be made in cash or check; provided, however, that
the Committee, in its sole discretion, may permit an optionee to pay the option
price in whole or in part (i) with shares of Stock owned by the Optionee; (ii)
by delivery on a form prescribed by the Committee of an irrevocable direction to
a securities broker approved by the Committee to sell shares and deliver all or
a portion of the proceeds to the Company in payment for the Stock; (iii) by
delivery of the optionee's promissory note with such recourse, interest,
security, and redemption provisions as the Committee in its discretion
determines appropriate; or (iv) in any combination of the foregoing. Any Stock
used to exercise options shall be valued at its fair market value on the date of
the exercise of the option. In addition, the Committee, in its sole discretion,
may authorize the surrender by an optionee of all or part of an unexercised
option (excluding options granted under Section 7, above) and authorize a
payment in consideration thereof of an amount equal to the difference between
the aggregate fair market value of the Stock subject to such option and the
aggregate option price of such Stock. In the Committee's discretion, such
payment may be made in cash, shares of Stock with a fair market value on the
date of surrender equal to the payment amount, or some combination thereof.
(b) In the event that the exercise price is satisfied by the
Committee retaining from the shares of Stock otherwise to be issued to optionee
shares of Stock having a value equal to the exercise price, the Committee may
issue optionee an additional option, with terms identical to this option
agreement, entitling optionee to purchase additional Stock in an amount equal to
the number of shares so retained; provided, however, that no such additional
options may be granted with respect to options granted pursuant to Section 7,
above.
14. Withholding Taxes.
(a) No Stock shall be delivered under the Plan to any optionee
until the optionee has made arrangements acceptable to the Committee (or in the
case of exercise of options granted to Named Executives, the Subcommittee) for
the satisfaction of federal, state, and local income and social security tax
withholding obligations, including, without limitation, obligations incident to
the receipt of Stock under the Plan or to the failure to satisfy the conditions
for treatment as incentive stock options under applicable tax law. Upon exercise
of an option the Company shall
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<PAGE> 22
withhold from the optionee an amount sufficient to satisfy federal, state and
local income and social security tax withholding obligations.
(b) In the event that such tax withholding is satisfied by the
Company or the optionee's employer withholding shares of Stock otherwise
deliverable to the optionee, the Committee may issue the optionee an additional
option, with terms identical to the option agreement under which the option was
exercised, entitling the optionee to purchase additional shares of Stock equal
to the number of shares so withheld but at an exercise price equal to the fair
market value of the Stock on the grant date of the new option; provided,
however, that no such additional options may be granted with respect to options
granted pursuant to Section 7, above.
15. Restrictions on Transfer of Shares. The Stock acquired pursuant to
the exercise of options granted under the Plan shall be subject to such
restrictions and agreements regarding sale, assignment, encumbrances or other
transfer as are in effect among the stockholders of the Company at the time such
Stock is acquired.
16. Transfer of Control. A "Transfer of Control" shall be deemed to
have occurred in the event of any of the following:
(a) the sale or exchange by the stockholders of the Company of all
or substantially all of the stock of the Adopting Company where the stockholders
before such sale or exchange do not retain, directly or indirectly, at least a
majority of the beneficial interest in the voting stock of the Adoption Company;
(b) a merger in which the stockholders of the Company before such
merger do not retain, directly or indirectly, at least a majority of the
beneficial interest in the voting stock of the Adopting Company; or
(c) the sale or exchange of all or substantially all of the
Adopting Company's assets (other than a sale or transfer to a subsidiary of the
Company as defined in section 424(f) of the Code).
Any options which are neither exercised as of the date of the
Transfer of Control nor assumed by the surviving, continuing, successor or
purchasing corporation, as the case may be, shall terminate effective as of the
date of the Transfer of Control.
17. Stockholders Approval. This Plan shall only become effective with
regard to incentive stock options upon its approval by a majority of the
stockholders voting (in person or by proxy) at a stockholders' meeting held
within 12 months of the Board's adoption of the Plan. The Committee may grant
incentive stock options under the Plan prior to the stockholders' meeting, but
until stockholder approval of the Plan is obtained, no incentive stock option
shall be exercisable.
18. Rule 16b-3 Compliance. Transactions under the Plan are intended to
comply with all applicable conditions of Rule 16b-3 or its successors under the
Exchange Act. To the extent any provision of the Plan or action by the Board or
the Committee fails to so comply, it shall be deemed null and void, to the
extent permitted by law and deemed advisable by the Board or the Committee.
Moreover, in the event the Plan does not include a provision required by Rule
16b-3 to be stated therein in order to qualify the grants under Section 7 hereof
as grants under a non-discretionary formula under Rule 16b-3 such provision
(other than one relating to eligibility
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<PAGE> 23
requirements, or the price and amount of awards) shall be deemed automatically
to be incorporated by reference into the Plan with respect to grants of options
to Non-Employee Directors.
8
<PAGE> 24
VERILINK CORPORATION
NON-EMPLOYEE DIRECTORS' NON-QUALIFIED STOCK OPTION AGREEMENT
This agreement (the "Agreement") is made as of __________ __, 199__
(the "Grant Date") between Verilink Corporation (the "Company") and
_________________ ("Optionee").
WITNESSETH:
WHEREAS, the Company has adopted the Verilink Corporation Amended and
Restated 1993 Stock Option Plan (the "Plan"), which Plan is incorporated in this
Agreement by reference and made a part of it (capitalized terms shall have the
meaning ascribed to them in the Plan);
WHEREAS, the Plan provides for automatic option grants to Non-Employee
Directors of the Company;
NOW, THEREFORE, in consideration of the mutual covenants hereinafter
set forth, the parties to this Agreement hereby agree as follows:
1. Option Grant. The Company hereby grants to Optionee the right and
option to purchase from the Company on the terms and conditions hereinafter set
forth, all or any part of an aggregate of thirty thousand (30,000) shares of the
Common Stock of the Company (the "Stock"). The exercise price of the Stock
subject to this option shall be $_______ per share. This grant is an option
pursuant to Section 7 of the Plan.
2. Option Period. This option shall be exercisable only during the
Option Period, and during such Option Period, the exercisability of the option
shall be subject to the limitations of paragraph 3 and the vesting provisions of
paragraph 4. The Option Period shall commence on the Grant Date and, except as
provided in paragraph 3, shall end on the Terminal Date which shall be ten years
from the Grant Date.
3. Limits on Option Period. The Option Period may end before the
Terminal Date, as follows:
(a) If Optionee ceases to be a director on the Company's Board of
Directors (the "Board") for any reason other than cause, disability (within the
meaning of subparagraph (c) below) or death during the Option Period, the Option
Period shall terminate three months after the date Optionee ceases to be a
director or on the Terminal Date, whichever shall first occur, and the option
shall be exercisable only to the extent exercisable under paragraph 4 on the
date Optionee ceases to be a director.
(b) If Optionee dies while serving on the Board, the Option Period
shall end one year after the date of death or on the Terminal Date, whichever
shall first occur, and
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<PAGE> 25
Optionee's executor or administrator or the person or persons to whom Optionee's
rights under this option shall pass by will or by the applicable laws of descent
and distribution may exercise this option only to the extent exercisable under
paragraph 4 on the date of Optionee's death.
(c) If Optionee ceases to be a director by reason of disability, as
defined below, the Option Period shall end one year after the date Optionee
ceases to be a director or on the Terminal Date, whichever shall first occur,
and this option shall be exercisable only to the extent exercisable under
paragraph 4 on the date Optionee ceases to be a director. For purposes of this
subparagraph (c), an individual is permanently and totally disabled if he is
unable to engage in any substantial gainful activity by reason of any medically
determinable physical or mental impairment which can be expected to result in
death or which has lasted or can be expected to last for a continuous period of
not less than 12 months. An individual shall not be considered to be permanently
and totally disabled unless he furnishes proof of the existence thereof in such
form and manner, and at such times, as the Board may require.
(d) If Optionee is removed from the Board for cause during the
Option Period, the Option Period shall terminate on the date of such Optionee's
removal as a director and shall not thereafter be exercisable to any extent.
4. Vesting of Right to Exercise Options.
(a) This option shall vest as to ten thousand (10,000) shares
originally covered by this option on each anniversary of the Grant Date so that
the option will become fully vested and exercisable three (3) years following
the Grant Date. No partial exercise of this option may be for less than five
percent (5%) of the total number of shares then available under this option to
purchase shares of Stock. In no event shall the Company be required to issue
fractional shares.
(b) Notwithstanding the foregoing, all options granted under this
Agreement shall be subject to the provisions of Section 16 of the Plan (relating
to the effect of a "Transfer of Control" on options granted under the Plan).
5. Method of Exercise. Optionee may exercise the option with respect to
all or any part of the shares of Stock then subject to such exercise as follows:
(a) By giving the Company written notice of such exercise,
specifying the number of such shares as to which this option is exercised. Such
notice shall be accompanied by an amount equal to the exercise price of such
shares, in the form of any one or combination of the following: (i) cash or
check; (ii) with shares of Stock owned by the Optionee or with shares of Stock
withheld from the shares otherwise deliverable to the Optionee upon exercise of
the option; (iii) by delivery of the Optionee's promissory note with such
recourse, interest, security, and redemption provisions as the Committee in its
discretion determines appropriate; (iv) by delivery on a form prescribed by the
Committee of an irrevocable direction to a securities broker approved by the
Committee to sell shares of Stock and deliver all or a portion of the proceeds
to the Company in payment for the Stock; or (v) in any combination of the
foregoing.
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(b) If required by the Company, Optionee shall give the Company
satisfactory assurance in writing, signed by Optionee or Optionee's legal
representative, as the case may be, that such shares are being purchased for
investment and not with a view to the distribution thereof, provided that such
assurance shall be deemed inapplicable to (i) any sale of such shares by such
Optionee made in accordance with the terms of a registration statement covering
such sale, which has heretofore been (or may hereafter be) filed and become
effective under the Securities Act of 1933, as amended, and with respect to
which no stop order suspending the effectiveness thereof has been issued, and
(ii) any other sale of such shares with respect to which, in the opinion of
counsel for the Company, such assurance is not required to be given in order to
comply with the provisions of the Securities Act of 1933, as amended.
(c) As soon as practicable after receipt of the notice required in
paragraph 5(a) and satisfaction of the conditions set forth in paragraph 5(b),
the Company shall, without transfer or issue tax and without other incidental
expense to Optionee, deliver to Optionee at the office of the Company, at 145
Baytech Drive, San Jose, CA 95134, attention of the Corporate Secretary, or such
other place as may be mutually acceptable to the Company and Optionee, a
certificate or certificates of such shares of Stock; provided, however, that the
time of such delivery may be postponed by the Company for such period as may be
required for it with reasonable diligence to comply with applicable registration
requirements under the Securities Act of 1933, as amended, the Securities
Exchange Act of 1934, as amended, any applicable listing requirements of any
national securities exchange, and requirements under any other law or regulation
applicable to the issuance or transfer of such shares. If Optionee fails to
accept delivery of and pay for all or any part of the number of shares specified
in such notice upon tender or delivery thereof, Optionee's right to purchase
such shares may be terminated by the Company at its election.
6. Changes in Capitalization. If there should be any change in a class
of Stock subject to this option, through merger, consolidation, reorganization,
recapitalization, reincorporation, stock split, stock dividend (in excess of 2
percent) or other change in the capital structure of the Company, the Company
shall make appropriate adjustments in order to preserve, but not to increase,
the benefits to Optionee, including adjustments of the number and kind of shares
of such Stock subject to this option and of the price per share. Any adjustment
made pursuant to this paragraph 6 as a consequence of a change in the capital
structure of the Company shall not entitle Optionee to acquire a number of
shares of such Stock of the Company or shares of stock of any successor company
greater than the number of shares Optionee would receive if, prior to such
change, Optionee had actually held a number of shares of such Stock equal to the
number of shares subject to this option.
7. Limitations on Transfer. To the extent required by Rule 16b-3 of the
Exchange Act, no Option shall be transferable by an Optionee other than by
operation of law or by will or by the laws of descent or distribution; provided
that, if Rule 16b-3 is amended after the Board's adoption of the Plan to permit
greater transferability of an Option, the Option hereunder shall be transferable
to the fullest extent provided by Rule 16b-3 as so amended. In the event of any
Rule 16b-3 permitted transfer of the Option, the transferee shall be entitled to
exercise the Option in the same manner and only to the same extent as the
Optionee (or his personal
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<PAGE> 27
representative or the person who would have acquired the right to exercise the
Option by bequest or intestate succession) would have been entitled to exercise
the Option had the Option not been transferred.
8. No Stockholder Rights. Neither Optionee nor any person entitled to
exercise Optionee's rights in the event of Optionee's death shall have any of
the rights of a stockholder with respect to the shares of Stock subject to this
option except to the extent the certificates for such shares shall have been
issued upon the exercise of this option.
9. Notice. Any notice required to be given under the terms of this
Agreement shall be addressed to the Company in care of its Corporate Secretary
at the office of the Company at 145 Baytech Drive, San Jose, CA 95134, and any
notice to be given to Optionee shall be addressed to Optionee at the address
given by Optionee beneath Optionee's signature to this Agreement, or such other
address as either party to this Agreement may hereafter designate in writing to
the other. Any such notice shall be deemed to have been duly given when enclosed
in a properly sealed envelope addressed as aforesaid, registered or certified
and deposited (postage and registration or certification fee prepaid) in a post
office or branch post office regularly maintained by the United States.
10. Successors. This Agreement shall be binding upon and inure to the
benefit of any successor or successors of the Company. Where the context
permits, "Optionee" as used in this Agreement shall include Optionee's executor,
administrator or other legal representative or the person or persons to whom
Optionee's rights pass by will or the applicable laws of descent and
distribution.
11. Withholding. Optionee agrees to make appropriate arrangements with
the Company for satisfaction of any applicable federal, state or local income
tax withholding requirements or social security requirements.
12. Applicable Law. The interpretation, performance, and enforcement of
this Agreement shall be governed by the laws of the State of California.
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IN WITNESS WHEREOF, this Agreement has been executed as of the day and
year first written above.
Verilink Corporation
By:
-------------------------------------
Its:
------------------------------------
----------------------------------------
Optionee
Address:
--------------------------------
--------------------------------
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ATTACHMENT A
CONSENT OF SPOUSE
I, __________________________, spouse of ____________________________
____________________________, have read and approved the foregoing Agreement. In
consideration of granting to my spouse the right to purchase shares of Verilink
Corporation as set forth in the Agreement, I hereby appoint my spouse as my
attorney-in-fact with respect to the exercise of any rights of the Agreement
insofar as I may have any rights under such community property laws or similar
laws relating to marital property in effect in the state of our residence as of
the date of the signing of the foregoing Agreement.
Dated: ______________________________ By: ________________________________
<PAGE> 30
VERILINK CORPORATION
INCENTIVE STOCK OPTION AGREEMENT
(SUBJECT TO VESTING)
This Agreement is made as of _______________________ (the "Grant
Date"), between VERILINK CORPORATION (the "Company") and __________________
__________________________ ("Optionee").
WITNESSETH:
WHEREAS, the Company has adopted the Amended and Restated 1993 Stock
Option Plan (the "Plan"), which Plan is incorporated in this Agreement by
reference and made a part of it; and
WHEREAS, the Company regards Optionee as a valuable employee of the
Company, and has determined that it would be to the advantage and in the
interests of the Company and its stockholders to grant the options provided for
in this Agreement to Optionee as an inducement to remain in the service of the
Company (as defined in the Plan) and as an incentive for increased efforts
during such service;
NOW, THEREFORE, in consideration of the mutual covenants hereinafter
set forth, the parties to this Agreement hereby agree as follows:
1. Option Grant. The Company hereby grants to Optionee the right and
option to purchase from the Company on the terms and conditions hereinafter set
forth, all or any part of an aggregate of ____________ shares of the Common
Stock of the Company (the "Stock"). This option is not intended to satisfy the
requirements of Section 422 of the Internal Revenue Code of 1986, as amended
(the "Code") for incentive stock options.
2. Option Price. The purchase price of the Stock subject to this option
shall be $_____ per share, which price is not less than 100 percent of the per
share fair market value, or, if Optionee possesses more than ten percent of the
combined voting power of the Company or any of its affiliates, not less than 110
percent of the fair market value, of such Stock as of the Grant Date. The term
"Option Price" as used in this agreement refers to the purchase price of the
Stock subject to this option.
3. Option Period. This option shall be exercisable only during the
Option Period, and during such Option Period, the exercisability of the option
shall be subject to the limitations of paragraph 4 and the vesting provisions of
paragraph 5. The Option Period shall commence on the Grant Date and except as
provided in paragraph 4, shall terminate ___ years from the Grant Date (the
"Termination Date").
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4. Limits on Option Period. The Option Period may end before the
Termination Date, as follows:
(a) If Optionee ceases to be a bona fide employee of the Company or
an Affiliate for any reason other than disability or death during the Option
Period, the Option Period shall terminate three months after the date of such
cessation of employment or on the Termination Date, whichever shall first occur,
and the option shall be exercisable only to the extent exercisable under
paragraph 5 on the date of Optionee's cessation of employment.
(b) If Optionee dies while in the employ of the Company or any of
its Affiliates, the Option Period shall end one year after the date of death or
on the Termination Date, whichever shall first occur, and Optionee's executor or
administrator or the person or persons to whom Optionee's rights under this
option shall pass by will or by the applicable laws of descent and distribution
may exercise this option only to the extent exercisable under paragraph 5 on the
date of Optionee's death.
(c) If Optionee's employment is terminated by reason of disability,
the Option Period shall end one year after the date of Optionee's cessation of
employment or on the Termination Date, whichever shall first occur, and the
option shall be exercisable only to the extent exercisable under paragraph 5 on
the date of Optionee's cessation of employment.
(d) If Optionee is on a leave of absence from the Company or an
Affiliate because of his disability, or for the purpose of serving the
government of the country in which the principal place of employment of Optionee
is located, either in a military or civilian capacity, or for such other purpose
or reason as the Committee may approve, Optionee shall not be deemed during the
period of such absence, by virtue of such absence alone, to have terminated
employment with the Company or an Affiliate except as the Committee may
otherwise expressly provide.
5. Vesting of Shares. The option shall be immediately exercisable in
its entirety or in part subject to Optionee's agreement that any shares
purchased upon exercise are subject to the Company's repurchase rights set forth
in paragraph 11 below. Subject to other limitations contained in this Agreement,
the shares covered by the option shall vest and therefore no longer be subject
to the Unvested Share Repurchase Option (described in paragraph 11) in
accordance with the following schedule:
(a) As to 25% of the number of shares covered by the option, one
year from the Grant Date, provided Optionee has been continuously employed from
the Grant Date to the end of the one year period.
(b) As to an additional 1/48 of the total number of shares covered
by the option, after the end of each full month of continuous employment by the
Company thereafter until the shares covered by the option are fully vested.
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<PAGE> 32
(c) Any portion of the option that is not exercised shall accumulate
and may be exercised at any time during the Option Period prior to the
Termination Date. No partial exercise of this option may be for less than five
percent of the total number of shares then available under this option. In no
event shall the Company be required to issue fractional shares.
6. Method of Exercise.
Optionee may exercise the option with respect to all or any part of
the shares of Stock then subject to such exercise as follows:
(a) By giving the Company written notice of such exercise,
specifying the number of such shares as to which this option is exercised. Such
notice shall be accompanied by an executed copy of the then current form of
escrow instructions as required in paragraph 11, and by an amount equal to the
Option Price of such shares, in the form of any one or combination of the
following: (i) cash or check payable to the order of the Company in lawful money
of the United States; (ii) shares of Stock valued at fair market value; (iii) by
delivery on a form prescribed by the Committee of an irrevocable direction to a
securities broker approved by the Committee to sell shares and deliver all or a
portion of the proceeds to the Company in payment for the Stock; (iv) a
promissory note of Optionee; or (v) in any combination of the foregoing. The
shares of Stock shall be valued in accordance with procedures established by the
Committee. Any note used to exercise this option shall be a full recourse,
interest-bearing obligation containing such terms as the Committee shall
determine. If a note is used, Optionee agrees to execute such further documents
as the Committee may deem necessary or appropriate in connection with issuing
the note, perfecting a security interest in the Stock purchased with the note,
and any related terms or conditions that the Committee may propose. Such further
documents may include, not by way of limitation, a security agreement, an escrow
agreement, a voting trust agreement and an assignment separate from certificate.
In the event that the exercise price is satisfied by the Committee retaining
from the shares of Stock otherwise to be issued to Optionee shares of Stock
having a value equal to the exercise price, the Committee may issue Optionee an
additional option, with terms identical to this option agreement, entitling
Optionee to purchase additional Stock in an amount equal to the number of shares
so retained.
(b) Optionee (and Optionee's spouse, if any) shall be required, as a
condition precedent to acquiring Stock through exercise of the option, to
execute one or more agreements relating to obligations in connection with
ownership of the Stock or restrictions on transfer of the Stock no less
restrictive than the obligations and restrictions to which the other
stockholders of the Company are subject at the time of such exercise.
As soon as practicable after receipt of the notice required in
paragraph 6(a) and satisfaction of the conditions set forth in paragraph 6(b)
the Company shall, without transfer or issue tax and without other incidental
expense to Optionee, deliver to the escrow agent described in paragraph 11, a
certificate or certificates of such shares of Stock; provided, however, that the
time of such delivery may be postponed by the Company for such period as may be
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<PAGE> 33
required for it with reasonable diligence to comply with applicable registration
requirements under the Securities Act of 1933, as amended, the Securities
Exchange Act of 1934, as amended, any applicable listing requirements of any
national securities exchange, and requirements under any other law or regulation
applicable to the issuance or transfer of such shares.
7. Transfer of Control. A "Transfer of Control" shall be deemed to
have occurred in the event of any of the following:
(a) the sale or exchange by the stockholders of the Company of all
or substantially all of the stock of the Company where the stockholders before
such sale or exchange do not retain, directly or indirectly, at least a majority
of the beneficial interest in the voting stock of the acquiring company;
(b) a merger in which the stockholders of the Company before such
merger do not retain, directly or indirectly, at least a majority of the
beneficial interest in the voting stock of the surviving company; or
(c) the sale or exchange of all or substantially all of the
Company's assets (other than a sale or transfer to a subsidiary of the Company
as defined in section 424(f) of the Code).
Any options which are neither exercised as of the date of the
Transfer of Control nor assumed by the surviving, continuing, successor or
purchasing corporation, as the case may be, shall terminate as of the date of
the Transfer of Control.
8. Limitations on Transfer. This option shall, during Optionee's
lifetime, be exercisable only by Optionee, and neither this option nor any right
hereunder shall be transferable by Optionee by operation of law or otherwise
other than by will or the laws of descent and distribution. In the event of any
attempt by Optionee to alienate, assign, pledge, hypothecate, or otherwise
dispose of this option or of any right hereunder, except as provided for in this
Agreement, or in the event of the levy of any attachment, execution, or similar
process upon the rights or interest hereby conferred, such disposition shall be
null and void, and the Company at its election may terminate this option by
notice to Optionee and this option shall thereupon become null and void.
9. No Stockholder Rights. Neither Optionee nor any person entitled to
exercise Optionee's rights in the event of his death shall have any of the
rights of a stockholder with respect to the shares of Stock subject to this
option except to the extent the certificates for such shares shall have been
issued upon the exercise of this option.
10. NO EFFECT ON TERMS OF EMPLOYMENT. SUBJECT TO THE TERMS OF ANY
WRITTEN EMPLOYMENT CONTRACT TO THE CONTRARY, THE COMPANY (OR ITS AFFILIATE WHICH
EMPLOYS OPTIONEE) SHALL HAVE THE
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<PAGE> 34
RIGHT TO TERMINATE OR CHANGE THE TERMS OF EMPLOYMENT OF OPTIONEE AT ANY TIME AND
FOR ANY REASON WHATSOEVER, WITH OR WITHOUT CAUSE.
11. Unvested Share Repurchase Option. In the event Optionee's
employment with the Company is terminated for any reason, with or without cause,
or if Optionee or Optionee's legal representative attempts to sell, exchange,
transfer, pledge or otherwise dispose of any shares acquired upon exercise of
the Option which have not vested in Optionee pursuant to paragraph 5 above, the
Company shall have the right to repurchase the Unvested Shares under the terms
and subject to the conditions set forth in this paragraph 11.
(a) In the event of a Transfer of Control, the Board of Directors,
in its sole discretion, may terminate in whole or in part the Unvested Share
Repurchase Option or may arrange with the surviving, continuing, successor or
purchasing corporation, as the case may be, to have such corporation assume the
Company's rights and obligations under the Plan and all outstanding option
agreements. In the latter event, the Unvested Share Repurchase Option shall
continue in full force and effect; provided, however, that "employment with the
Company" for purposes of this paragraph 11 and paragraph 5 shall include all
services with any corporation or entity which was included within the term
"Company" at the time the services were rendered, whether or not the corporation
or entity was included within such term both before and after the event
constituting the Transfer of Control.
(b) Escrow. To insure that the Unvested Shares will be available
for repurchase, Optionee shall, upon exercise of the option, instruct the
Company to deposit the certificate evidencing the shares with an escrow agent
designated by the Committee under the terms and conditions of an escrow
agreement approved by the Committee. The Company shall bear the expenses of the
escrow.
(c) Exercise of Unvested Share Repurchase Option. The Company may
exercise the Unvested Share Repurchase Option by written notice to the escrow
agent and to Optionee or Optionee's legal representative within sixty (60) days
after such termination of employment (or exercise of the Option, if later) or
after the Company has received notice of the attempted disposition. If the
Company fails to give notice within such sixty (60) day period, the Unvested
Share Repurchase Option shall terminate unless the Company and Optionee have
extended the time for the exercise of the Unvested Share Repurchase Option. The
Unvested Share Repurchase Option must be exercised, if at all, for all of the
Unvested Shares except as the Company and Optionee otherwise agree.
(d) Payment for Shares and Return of Shares. Payment by the Company
to the escrow agent on behalf of Optionee or Optionee's legal representative
shall be made in cash within sixty (60) days after the date of the mailing of
the written notice of exercise of the Unvested Share Repurchase Option. For
purposes of the foregoing, cancellation of any indebtedness of Optionee to the
Company shall be treated as payment to Optionee in cash to the extent of the
unpaid principal and any accrued interest cancelled. The purchase price per
share of Stock being purchased by the Company shall be an amount equal to
Optionee's original cost per
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<PAGE> 35
share as adjusted pursuant to paragraph 3(b) of the Plan. Within thirty (30)
days after payment by the Company, the escrow agent shall deliver the shares
which the Company has purchased to the Company and shall deliver the payment
received from the Company to Optionee.
(e) Transfers Not Subject to the Unvested Share Repurchase Option.
The Unvested Share Repurchase Option shall not apply to a transfer to Optionee's
ancestors, descendants or spouse or to a trustee solely for the benefit of
Optionee or Optionee's ancestors, descendants or spouse, provided that such
transferee shall agree in writing (in a form satisfactory to the Committee) to
take the stock subject to all the terms and conditions of this paragraph 11
providing for an Unvested Share Repurchase Option.
12. Section 83(b) Election. Optionee hereby represents that Optionee
understands (a) the contents and requirements of a timely election made pursuant
to Section 83(b) of the Internal Revenue Code or similar provision of state law
(collectively, an "83(b) Election"), (b) the application of Section 83(b) to the
purchase of Stock by Optionee pursuant to this Agreement, (c) the nature of the
election to be made by Optionee under Section 83(b) and (d) the effect and
requirements of the 83(b) Election under relevant state and local tax laws.
Optionee further represents that Optionee intends to file an election pursuant
to Section 83(b), the form of which Election is attached hereto as Attachment B,
with the Internal Revenue Service within thirty (30) days following purchase of
the Stock hereunder, and a copy of such election with his or her federal tax
return for the calendar year in which the date of this Agreement falls. Optionee
covenants to inform the Company of any change in Optionee's state of residency.
Optionee shall provide the Company with a copy of any timely 83(b) Election. If
Optionee makes a timely 83(b) Election, Optionee shall immediately pay Company
(or the Affiliate that employs Optionee) the amount necessary to satisfy any
applicable federal, state, and local income and employment tax withholding
requirements. If Optionee does not make a timely 83(b) Election, Optionee shall,
either at the time that the restrictions lapse under this Agreement and the Plan
or at the time withholding is otherwise required by any applicable law, pay the
Company (or the Affiliate that employs Optionee) the amount necessary to satisfy
any applicable federal, state, and local income and employment tax withholding
requirements.
13. Release from Escrow. As soon as practicable after the expiration of
the Unvested Share Repurchase Option and after full repayment on any promissory
note secured by the shares in escrow, the escrow agent shall deliver to Optionee
the shares no longer subject to such restrictions and no longer security for any
promissory note.
14. Stock Dividends Subject to Stock Option Agreement. If, from time to
time, there is any stock dividend, stock split or other change in the character
or amount of any of the outstanding stock of the Company, then in such event any
and all new substituted or additional securities to which Optionee is entitled
by reason of Optionee's ownership of the shares acquired upon exercise of the
Option shall be immediately subject to the Unvested Share Repurchase Option with
the same force and effect as the shares subject to the Unvested Share Repurchase
Option immediately before such event.
6
<PAGE> 36
15. Legends. The Company may at any time place legends referencing the
Unvested Share Repurchase Option set forth in paragraph 11 and any applicable
federal and/or state securities restrictions on all certificates representing
shares of Stock subject to the provisions of this Agreement.
"THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO THE UNVESTED
SHARE REPURCHASE OPTION SET FORTH IN AN AGREEMENT BETWEEN THE
CORPORATION AND THE REGISTERED HOLDER, OR HIS PREDECESSOR IN INTEREST,
A COPY OF WHICH IS ON FILE AT THE PRINCIPAL OFFICE OF THIS CORPORATION.
16. Notice. Any notice required to be given under the terms of this
Agreement shall be addressed to the Company in care of its Secretary at the
Office of the Company at 145 Baytech Drive, San Jose, California 95134, and any
notice to be given to Optionee shall be addressed to him at the address given by
him beneath his signature to this Agreement, or such other address as either
party to this Agreement may hereafter designate in writing to the other. Any
such notice shall be deemed to have been duly given when enclosed in a properly
sealed envelope or wrapper addressed as aforesaid, registered or certified and
deposited (postage or registration or certification fee prepaid) in a post
office or branch post office regularly maintained by the United States.
17. Committee Decisions Conclusive. All decisions of the Committee
upon any question arising under the Plan or under this Agreement shall be
conclusive.
18. Successors. This Agreement shall be binding upon and inure to the
benefit of any successor or successors of the Company. Where the context
permits, "Optionee" as used in this Agreement shall include Optionee's executor,
administrator or other legal representative or the person or persons to whom
Optionee's rights pass by will or the applicable laws of descent and
distribution.
19. Early Dispositions. Optionee agrees, as partial consideration for
the designation of this option as an incentive stock option under Section 422 of
the Code, to notify the Company in writing within thirty (30) days of any
disposition of any shares acquired by exercise of this option if such
disposition occurs within two (2) years from the Grant Date or within one (1)
year from the date Optionee purchases such shares by exercise of this option. If
the Company is required to withhold an amount for the purpose of income and
employment taxes as a result of an early disposition, Optionee acknowledges that
he will be required to satisfy the amount of such withholding in a manner that
the Company prescribes.
20. California Law. The interpretation, performance and enforcement of
this Agreement shall be governed by the laws of the State of California.
7
<PAGE> 37
IN WITNESS WHEREOF, the Company and Optionee have executed this
Agreement as of the day and year first above written.
VERILINK CORPORATION
By
---------------------------------------
Its
---------------------------------------
------------------------------------------
Optionee
Address:
----------------------------------
------------------------------------------
------------------------------------------
8
<PAGE> 38
ATTACHMENT A
CONSENT OF SPOUSE
I,________________________, spouse of ______________________
have read and approved the foregoing Agreement. In consideration of granting of
the right of my spouse to purchase shares of Verilink Corporation, as set forth
in the Agreement, I hereby appoint my spouse as my attorney-in-fact with respect
to the exercise of any rights of the Agreement insofar as I may have any rights
under such community property laws of the State of California or similar laws
relating to marital property in effect in the state of our residence as of the
date of the signing of the foregoing Agreement.
Dated:_______________, 199__. By:________________________________________
<PAGE> 39
ATTACHMENT B
ELECTION UNDER SECTION 83(b)
OF THE INTERNAL REVENUE CODE OF 1986
The undersigned taxpayer hereby elects, pursuant to the Internal
Revenue Code, to include in gross income for 19__ the amount of any compensation
taxable in connection with the taxpayer's receipt of the property described
below;
1. The name, address, taxpayer identification number and taxable year
of the undersigned are:
TAXPAYER'S NAME:
SPOUSE'S NAME:
TAXPAYER'S SOCIAL SECURITY NO.:
SPOUSE'S SOCIAL SECURITY NO.:
TAXABLE YEAR: Calendar Year 19__
ADDRESS:
2. The property which is the subject of this election is: ______ shares
of common stock of ___________________.
3. The property was transferred to the undersigned on ______________,
19___.
4. The property is subject to the following restriction:
____________________________________________.
5. The fair market value of the property at the time of transfer
(determined without regard to any restriction other than a restriction which by
its terms will never lapse) is: $_______ per share x ________ shares =
$____________.
6. The undersigned paid $________ per share x _______ shares for the
property transferred or a total of $__________.
The undersigned has submitted a copy of this statement to the person
for whom the services were performed in connection with the undersigned's
receipt of the above-described property. The undersigned taxpayer is the person
performing the services in connection with the transfer of said property.
<PAGE> 40
The undersigned will file this election with the Internal Revenue
Service office in which he or she files his or her annual income tax return not
later than 30 days after the date of transfer of the property. A copy of the
election also will be furnished to the person for whom the services were
performed. Additionally, the undersigned will include a copy of the election
with his or her income tax return for the taxable year in which property is
transferred. The undersigned understands that this election will also be
effective as an election under California law.
Dated:
---------------------------- ------------------------------------------
Taxpayer
The undersigned spouse of taxpayer joins in this election.
Dated:
---------------------------- ------------------------------------------
Spouse of Taxpayer
<PAGE> 41
VERILINK CORPORATION
NONQUALIFIED STOCK OPTION AGREEMENT
(SUBJECT TO VESTING)
This Agreement is made as of _______________________ (the "Grant
Date"), between VERILINK CORPORATION (the "Company") and
__________________________________ ("Optionee").
WITNESSETH:
WHEREAS, the Company has adopted the Amended and Restated 1993 Stock
Option Plan (the "Plan"), which Plan is incorporated in this Agreement by
reference and made a part of it; and
WHEREAS, the Company regards Optionee as a valuable employee of the
Company, and has determined that it would be to the advantage and in the
interests of the Company and its stockholders to grant the options provided for
in this Agreement to Optionee as an inducement to remain in the service of the
Company (as defined in the Plan) and as an incentive for increased efforts
during such service;
NOW, THEREFORE, in consideration of the mutual covenants hereinafter
set forth, the parties to this Agreement hereby agree as follows:
1. Option Grant. The Company hereby grants to Optionee the right and
option to purchase from the Company on the terms and conditions hereinafter set
forth, all or any part of an aggregate of ____________ shares of the Common
Stock of the Company (the "Stock"). This option is not intended to satisfy the
requirements of Section 422 of the Internal Revenue Code of 1986, as amended
(the "Code") for incentive stock options.
2. Option Price. The purchase price of the Stock subject to this option
shall be $_____ per share, which price is not less than 85 percent of the per
share fair market value, as of the Grant Date. The term "Option Price" as used
in this agreement refers to the purchase price of the Stock subject to this
option.
3. Option Period. This option shall be exercisable only during the
Option Period, and during such Option Period, the exercisability of the option
shall be subject to the limitations of paragraph 4 and the vesting provisions of
paragraph 5. The Option Period shall commence on the Grant Date and except as
provided in paragraph 4, shall terminate ___ years from the Grant Date (the
"Termination Date").
1
<PAGE> 42
4. Limits on Option Period. The Option Period may end before the
Termination Date, as follows:
(a) If Optionee ceases to be a bona fide employee of the Company or
an Affiliate for any reason other than disability (within the meaning of
subparagraph (c)) or death during the Option Period, the Option Period shall
terminate three months after the date of such cessation of employment or on the
Termination Date, whichever shall first occur, and the option shall be
exercisable only to the extent exercisable under paragraph 5 on the date of
Optionee's cessation of employment.
(b) If Optionee dies while in the employ of the Company or any of
its Affiliates, the Option Period shall end one year after the date of death or
on the Termination Date, whichever shall first occur, and Optionee's executor or
administrator or the person or persons to whom Optionee's rights under this
option shall pass by will or by the applicable laws of descent and distribution
may exercise this option only to the extent exercisable under paragraph 5 on the
date of Optionee's death.
(c) If Optionee's employment is terminated by reason of disability
(within the meaning of Section 22(e)(3) of the Code), the Option Period shall
end one year after the date of Optionee's cessation of employment or on the
Termination Date, whichever shall first occur, and the option shall be
exercisable only to the extent exercisable under paragraph 5 on the date of
Optionee's cessation of employment.
(d) If Optionee is on a leave of absence from the Company or an
Affiliate because of his disability, or for the purpose of serving the
government of the country in which the principal place of employment of Optionee
is located, either in a military or civilian capacity, or for such other purpose
or reason as the Committee may approve, Optionee shall not be deemed during the
period of such absence, by virtue of such absence alone, to have terminated
employment with the Company or an Affiliate except as the Committee may
otherwise expressly provide.
5. Vesting of Shares. The option shall be immediately exercisable in
its entirety or in part subject to Optionee's agreement that any shares
purchased upon exercise are subject to the Company's repurchase rights set forth
in paragraph 11 below. Subject to other limitations contained in this Agreement,
the shares covered by the option shall vest and therefore no longer be subject
to the Unvested Share Repurchase Option (described in paragraph 11) in
accordance with the following schedule:
(a) As to 25% of the number of shares covered by the option, one
year from the Grant Date, provided Optionee has been continuously employed from
the Grant Date to the end of the one year period.
2
<PAGE> 43
(b) As to an additional 1/48 of the total number of shares covered
by the option, after the end of each full month of continuous employment by the
Company thereafter until the shares covered by the option are fully vested.
(c) Any portion of the option that is not exercised shall accumulate
and may be exercised at any time during the Option Period prior to the
Termination Date. No partial exercise of this option may be for less than five
percent of the total number of shares then available under this option. In no
event shall the Company be required to issue fractional shares.
6. Method of Exercise.
Optionee may exercise the option with respect to all or any part of
the shares of Stock then subject to such exercise as follows:
(a) By giving the Company written notice of such exercise,
specifying the number of such shares as to which this option is exercised. Such
notice shall be accompanied by an executed copy of the then current form of
escrow instructions as required in paragraph 11 and by an amount equal to the
Option Price of such shares, in the form of any one or combination of the
following: (i) cash or check payable to the order of the Company in lawful money
of the United States; (ii) shares of Stock valued at fair market value; (iii) by
delivery on a form prescribed by the Committee of an irrevocable direction to a
securities broker approved by the Committee to sell shares and deliver all or a
portion of the proceeds to the Company in payment for the stock, (iv) a
promissory note of Optionee; or (v) in any combination of the foregoing. The
shares of Stock shall be valued in accordance with procedures established by the
Committee. Any note used to exercise this option shall be a full recourse,
interest-bearing obligation containing such terms as the Committee shall
determine. If a note is used, Optionee agrees to execute such further documents
as the Committee may deem necessary or appropriate in connection with issuing
the note, perfecting a security interest in the Stock purchased with the note,
and any related terms or conditions that the Committee may propose. Such further
documents may include, not by way of limitation, a security agreement, an escrow
agreement, a voting trust agreement and an assignment separate from certificate.
In the event that the exercise price is satisfied by the Committee retaining
from the shares of Stock otherwise to be issued to Optionee shares of Stock
having a value equal to the exercise price, the Committee may issue Optionee an
additional option, with terms identical to this option agreement, entitling
Optionee to purchase additional Stock in an amount equal to the number of shares
so retained.
(b) Optionee (and Optionee's spouse, if any) shall be required, as a
condition precedent to acquiring Stock through exercise of the option, to
execute one or more agreements relating to obligations in connection with
ownership of the Stock or restrictions on transfer of the Stock no less
restrictive than the obligations and restrictions to which the other
stockholders of the Company are subject at the time of such exercise.
As soon as practicable after receipt of the notice required in
paragraph 6(a) and satisfaction of the conditions set forth in paragraph 6(b),
the Company shall, without transfer
3
<PAGE> 44
or issue tax and without other incidental expense to Optionee, deliver to the
escrow agent described in paragraph 11, a certificate or certificates of such
shares of Stock; provided, however, that the time of such delivery may be
postponed by the Company for such period as may be required for it with
reasonable diligence to comply with applicable registration requirements under
the Securities Act of 1933, as amended, the Securities Exchange Act of 1934, as
amended, any applicable listing requirements of any national securities
exchange, and requirements under any other law or regulation applicable to the
issuance or transfer of such shares.
7. Transfer of Control. A "Transfer of Control" shall be deemed to
have occurred in the event of any of the following:
(a) the sale or exchange by the stockholders of the Company of all
or substantially all of the stock of the Company where the stockholders before
such sale or exchange do not retain, directly or indirectly, at least a majority
of the beneficial interest in the voting stock of the acquiring company;
(b) a merger in which the stockholders of the Company before such
merger do not retain, directly or indirectly, at least a majority of the
beneficial interest in the voting stock of the surviving company; or
(c) the sale or exchange of all or substantially all of the
Company's assets (other than a sale or transfer to a subsidiary of the Company
as defined in section 424(f) of the Code).
Any options which are neither exercised as of the date of the
Transfer of Control nor assumed by the surviving, continuing, successor or
purchasing corporation, as the case may be, shall terminate as of the date of
the Transfer of Control.
8. Limitations on Transfer. This option shall, during Optionee's
lifetime, be exercisable only by Optionee, and neither this option nor any right
hereunder shall be transferable by Optionee by operation of law or otherwise
other than by will or the laws of descent and distribution. In the event of any
attempt by Optionee to alienate, assign, pledge, hypothecate, or otherwise
dispose of this option or of any right hereunder, except as provided for in this
Agreement, or in the event of the levy of any attachment, execution, or similar
process upon the rights or interest hereby conferred, such disposition shall be
null and void, and the Company at its election may terminate this option by
notice to Optionee and this option shall thereupon become null and void.
9. No Stockholder Rights. Neither Optionee nor any person entitled to
exercise Optionee's rights in the event of his death shall have any of the
rights of a stockholder with respect to the shares of Stock subject to this
option except to the extent the certificates for such shares shall have been
issued upon the exercise of this option.
10. NO EFFECT ON TERMS OF EMPLOYMENT. SUBJECT TO THE TERMS OF ANY
WRITTEN EMPLOYMENT CONTRACT TO THE CONTRARY, THE COMPANY (OR ITS AFFILIATE WHICH
EMPLOYS OPTIONEE) SHALL HAVE THE
4
<PAGE> 45
RIGHT TO TERMINATE OR CHANGE THE TERMS OF EMPLOYMENT OF OPTIONEE AT ANY TIME AND
FOR ANY REASON WHATSOEVER, WITH OR WITHOUT CAUSE.
11. Unvested Share Repurchase Option. In the event Optionee's
employment with the Company is terminated for any reason, with or without cause,
or if Optionee or Optionee's legal representative attempts to sell, exchange,
transfer, pledge or otherwise dispose of any shares acquired upon exercise of
the Option which have not vested in Optionee pursuant to paragraph 5 above, the
Company shall have the right to repurchase the Unvested Shares under the terms
and subject to the conditions set forth in this paragraph 11.
(a) In the event of a Transfer of Control, the Board of Directors,
in its sole discretion, may terminate in whole or in part the Unvested Share
Repurchase Option or may arrange with the surviving, continuing, successor or
purchasing corporation, as the case may be, to have such corporation assume the
company's rights and obligations under the Plan and all outstanding option
agreements. In the latter event, the Unvested Share Repurchase Option shall
continue in full force and effect; provided, however, that "employment with the
Company" for purposes of this paragraph 11 and paragraph 5 shall include all
services with any corporation or entity which was included within the term
"Company" at the time the services were rendered, whether or not the corporation
or entity was included within such term both before and after the event
constituting the Transfer of Control.
(b) Escrow. To insure that the Unvested Shares will be available
for repurchase, Optionee shall, upon exercise of the option, instruct the
Company to deposit the certificate evidencing the shares with an escrow agent
designated by the Committee under the terms and conditions of an escrow
agreement approved by the Committee. The Company shall bear the expenses of the
escrow.
(c) Exercise of Unvested Share Repurchase Option. The Company may
exercise the Unvested Share Repurchase Option by written notice to the escrow
agent and to Optionee or Optionee's legal representative within sixty (60) days
after such termination of employment (or exercise of the Option, if later) or
after the Company has received notice of the attempted disposition. If the
Company fails to give notice within such sixty (60) day period, the Unvested
Share Repurchase Option shall terminate unless the Company and Optionee have
extended the time for the exercise of the Unvested Share Repurchase Option. The
Unvested Share Repurchase Option must be exercised, if at all, for all of the
Unvested Shares except as the Company and Optionee otherwise agree.
(d) Payment for Shares and Return of Shares. Payment by the Company
to the escrow agent on behalf of Optionee or Optionee's legal representative
shall be made in cash within sixty (60) days after the date of the mailing of
the written notice of exercise of the Unvested Share Repurchase Option. For
purposes of the foregoing, cancellation of any indebtedness of Optionee to the
Company shall be treated as payment to Optionee in cash to the extent of the
unpaid principal and any accrued interest cancelled. The purchase price per
share of Stock being purchased by the Company shall be an amount equal to
Optionee's original cost per
5
<PAGE> 46
share as adjusted pursuant to paragraph 3(b) of the Plan. Within thirty (30)
days after payment by the Company, the escrow agent shall deliver the shares
which the Company has purchased to the Company and shall deliver the payment
received from the Company to Optionee.
(c) Transfers Not Subject to the Unvested Share Repurchase Option.
The Unvested Share Repurchase Option shall not apply to a transfer to Optionee's
ancestors, descendants or spouse or to a trustee solely for the benefit of
Optionee or Optionee's ancestors, descendants or spouse, provided that such
transferee shall agree in writing (in a form satisfactory to the Committee) to
take the stock subject to all the terms and conditions of this paragraph 11
providing for an Unvested Share Repurchase Option.
12. Section 83(b) Election. Optionee hereby represents that Optionee
understands (a) the contents and requirements of a timely election made pursuant
to Section 83(b) of the Internal Revenue Code or similar provision of state law
(collectively, an "83(b) Election"), (b) the application of Section 83(b) to the
purchase of Stock by Optionee pursuant to this Agreement, (c) the nature of the
election to be made by Optionee under Section 83(b) and (d) the effect and
requirements of the 83(b) Election under relevant state and local tax laws.
Optionee further represents that Optionee intends to file an election pursuant
to Section 83(b), the form of which Election is attached hereto as Attachment B,
with the Internal Revenue Service within thirty (30) days following purchase of
the Stock hereunder, and a copy of such election with his or her federal tax
return for the calendar year in which the date of this Agreement falls. Optionee
covenants to inform the Company of any change in Optionee's state of residency.
Optionee shall provide the Company with a copy of any timely 83(b) Election. If
Optionee makes a timely 83(b) Election, Optionee shall immediately pay Company
(or the Affiliate that employs Optionee) the amount necessary to satisfy any
applicable federal, state, and local income and employment tax withholding
requirements. If Optionee does not make a timely 83(b) Election, Optionee shall,
either at the time that the restrictions lapse under this Agreement and the Plan
or at the time withholding is otherwise required by any applicable law, pay the
Company (or the Affiliate that employs Optionee) the amount necessary to satisfy
any applicable federal, state, and local income and employment tax withholding
requirements.
13. Release from Escrow. As soon as practicable after the expiration of
the Unvested Share Repurchase Option and after full repayment on any promissory
note secured by the shares in escrow, the escrow agent shall deliver to Optionee
the shares no longer subject to such restrictions and no longer security for any
promissory note.
14. Stock Dividends Subject to Stock Option Agreement. If, from time to
time, there is any stock dividend, stock split or other change in the character
or amount of any of the outstanding stock of the Company, then in such event any
and all new substituted or additional securities to which Optionee is entitled
by reason of Optionee's ownership of the shares acquired upon exercise of the
Option shall be immediately subject to the Unvested Share Repurchase Option with
the same force and effect as the shares subject to the Unvested Share Repurchase
Option immediately before such event.
6
<PAGE> 47
15. Legends. The Company may at any time place legends referencing the
Unvested Share Repurchase Option set forth in paragraph 11 and any applicable
federal and/or state securities restrictions on all certificates representing
shares of Stock subject to the provisions of this Agreement.
"THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO THE UNVESTED
SHARE REPURCHASE OPTION SET FORTH IN AN AGREEMENT BETWEEN THE
CORPORATION AND THE REGISTERED HOLDER, OR HIS PREDECESSOR IN INTEREST,
A COPY OF WHICH IS ON FILE AT THE PRINCIPAL OFFICE OF THIS CORPORATION.
16. Notice. Any notice required to be given under the terms of this
Agreement shall be addressed to the Company in care of its Secretary at the
Office of the Company at 145 Baytech Drive, San Jose, California 95134, and any
notice to be given to Optionee shall be addressed to him at the address given by
him beneath his signature to this Agreement, or such other address as either
party to this Agreement may hereafter designate in writing to the other. Any
such notice shall be deemed to have been duly given when enclosed in a properly
sealed envelope or wrapper addressed as aforesaid, registered or certified and
deposited (postage or registration or certification fee prepaid) in a post
office or branch post office regularly maintained by the United States.
17. Committee Decisions Conclusive. All decisions of the Committee upon
any question arising under the Plan or under this Agreement shall be conclusive.
18. Successors. This Agreement shall be binding upon and inure to the
benefit of any successor or successors of the Company. Where the context
permits, "Optionee" as used in this Agreement shall include Optionee's executor,
administrator or other legal representative or the person or persons to whom
Optionee's rights pass by will or the applicable laws of descent and
distribution.
19. Withholding. Optionee agrees to withholding of shares from exercise
for satisfaction of any applicable federal, state or local income tax or
employment tax withholding requirements. The Committee may issue Optionee an
additional option, with terms identical to this Option Agreement, entitling
Optionee to purchase additional Stock in an amount equal to the number of shares
so retained.
20. California Law. The interpretation, performance and enforcement of
this Agreement shall be governed by the laws of the State of California.
7
<PAGE> 48
IN WITNESS WHEREOF, the Company and Optionee have executed this
Agreement as of the day and year first above written.
VERILINK CORPORATION
By
--------------------------------------
Its
--------------------------------------
------------------------------------------
Optionee
Address:
---------------------------------
------------------------------------------
------------------------------------------
8
<PAGE> 49
ATTACHMENT A
CONSENT OF SPOUSE
I, ________________________, spouse of ______________________,
have read and approved the foregoing Agreement. In consideration of granting of
the right of my spouse to purchase shares of Verilink Corporation, as set forth
in the Agreement, I hereby appoint my spouse as my attorney-in-fact with respect
to the exercise of any rights of the Agreement insofar as I may have any rights
under such community property laws of the State of California or similar laws
relating to marital property in effect in the state of our residence as of the
date of the signing of the foregoing Agreement.
Dated:_______________, 199__. By:______________________________________
<PAGE> 50
ATTACHMENT B
ELECTION UNDER SECTION 83(b)
OF THE INTERNAL REVENUE CODE OF 1986
The undersigned taxpayer hereby elects, pursuant to the Internal
Revenue Code, to include in gross income for 19__ the amount of any compensation
taxable in connection with the taxpayer's receipt of the property described
below;
1. The name, address, taxpayer identification number and taxable year
of the undersigned are:
TAXPAYER'S NAME:
SPOUSE'S NAME:
TAXPAYER'S SOCIAL SECURITY NO.:
SPOUSE'S SOCIAL SECURITY NO.:
TAXABLE YEAR: Calendar Year 19__
ADDRESS:
2. The property which is the subject of this election is: ______ shares
of common stock of ___________________.
3. The property was transferred to the undersigned on ______________,
19___.
4. The property is subject to the following restriction:
_____________________________________________.
5. The fair market value of the property at the time of transfer
(determined without regard to any restriction other than a restriction which by
its terms will never lapse) is: $_______ per share x ________ shares =
$____________.
6. The undersigned paid $________ per share x _______ shares for the
property transferred or a total of $__________.
The undersigned has submitted a copy of this statement to the person
for whom the services were performed in connection with the undersigned's
receipt of the above-described property. The undersigned taxpayer is the person
performing the services in connection with the transfer of said property.
<PAGE> 51
The undersigned will file this election with the Internal Revenue
Service office in which he or she files his or her annual income tax return not
later than 30 days after the date of transfer of the property. A copy of the
election also will be furnished to the person for whom the services were
performed. Additionally, the undersigned will include a copy of the election
with his or her income tax return for the taxable year in which property is
transferred. The undersigned understands that this election will also be
effective as an election under California law.
Dated:
--------------------------------- -----------------------------------
Taxpayer
The undersigned spouse of taxpayer joins in this election.
Dated:
--------------------------------- -----------------------------------
Spouse of Taxpayer
<PAGE> 52
PROXY
VERILINK CORPORATION
Annual Meeting of Stockholders
To Be Held November 7, 1996
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
Revoking any such prior appointment, the undersigned, a stockholder of
VERILINK CORPORATION, hereby appoints LEIGH S. BELDEN, STEVEN C. TAYLOR and
TIMOTHY G. CONLEY, and each of them, attorneys and agents of the undersigned,
with full power of substitution, to vote all shares of the Common Stock of the
undersigned in said Company at the Annual Meeting of Stockholders of said
Company to be held at the Company's offices located at 145 Baytech Drive, San
Jose, California on November 7, 1996 at 10:00 a.m., Pacific Daylight Time, and
at any adjournments thereof, as fully and effectually as the undersigned could
do if personally present and voting, hereby approving, ratifying and confirming
all that said attorneys and agents or their substitutes may lawfully do in
place of the undersigned as indicated on the reverse side.
(continued and to be signed on reverse side)
SEE REVERSE
SIDE
<PAGE> 53
DETACH HERE
/X/ Please mark votes as in this example.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED AS DIRECTED. IF NO DIRECTION IS
INDICATED THIS PROXY WILL BE VOTED FOR PROPOSALS (1), (2) AND (3).
1. ELECTION OF DIRECTORS.
Nominee for Class I: Dr. David L. Lyon
Nominee for Class II: Howard Oringer
Nominee for Class III: Leigh S. Belden and Steven C. Taylor
FOR / / WITHHELD / / MARK HERE IF YOU PLAN TO ATTEND THE MEETING / /
MARK HERE FOR ADDRESS CHANGE AND NOTE BELOW / /
/ / For all nominees except as noted above
2. Ratification and approval of an amendment to the Company's Amended and
Restated 1993 Stock Option Plan ("1993 Option Plan") to increase the number
of shares reserved for issuance thereunder from 3,300,000 shares to
4,050,000 shares.
FOR / / AGAINST / / ABSTAIN / /
3. Ratification of Price Waterhouse LLP as the Company's independent
accountants for fiscal year 1997.
FOR / / AGAINST / / ABSTAIN / /
4. Upon any other matter which may properly come before the meeting or any
adjournments thereof.
PLEASE SIGN, DATE AND RETURN PROXY CARD PROMPTLY USING THE ENCLOSED ENVELOPE.
When shares are held by joint tenants, both should sign. When signing as
attorney, executor, administrator, trustee or guardian please give full title as
such. If a corporation, please sign in full corporate name by President or other
authorized officer. If a partnership, please sign in partnership name by
authorized person.
Please sign exactly as name appears hereon.
Signature________________________________________ Date________________________
Signature________________________________________ Date_________________________
