<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 (AMENDMENT NO. )
Filed by the Registrant [ ]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
<TABLE>
<S> <C>
[ ] Preliminary Proxy Statement [ ] Confidential, for Use of the Commission
Only (as permitted by Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
</TABLE>
VERILINK CORPORATION
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
[ ] Fee paid previously with preliminary materials:
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
<PAGE> 2
VERILINK CORPORATION
145 BAYTECH DRIVE
SAN JOSE, CALIFORNIA 95134
------------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD NOVEMBER 23, 1998
The Annual Meeting of Stockholders (the "Annual Meeting") of Verilink
Corporation (the "Company"), will be held at the Company's corporate offices
located at 145 Baytech Drive in San Jose, California on Monday, November 23,
1998, at 10:00 a.m. Pacific Daylight Time, for the following purposes:
1. To elect two (2) Class II directors to hold office until the 2001
annual meeting of stockholders and until their successors have been elected
or appointed;
2. To ratify and approve an amendment to the Company's Amended and
Restated 1993 Stock Option Plan to increase the number of shares reserved
for issuance thereunder from 4,050,000 shares to 5,050,000 shares;
3. To ratify and approve an amendment to the Company's 1996 Employee
Stock Purchase Plan to increase the number of shares reserved for issuance
thereunder from 300,000 shares to 500,000 shares;
4. To ratify the appointment of PricewaterhouseCoopers LLP as the
Company's independent accountants for the fiscal year ending June 27, 1999;
and
5. 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 October 1, 1998
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,
/s/ LEIGH S. BELDEN
--------------------------------------
Leigh S. Belden,
President, Chief Executive Officer
and Director
San Jose, California
October 20, 1998
<PAGE> 3
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 Monday, November 23, 1998, at 10:00 a.m.
Pacific Daylight Time, at the Company's corporate 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 October 1, 1998 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 13,921,946 shares of Common
Stock outstanding and entitled to vote at the Annual Meeting. The presence at
the Annual Meeting of a majority, or 6,960,974 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
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 October
1, 1998 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(2)
------------------------ ------------ -------------
<S> <C> <C>
Leigh S. Belden(3).......................................... 3,070,127 22.1%
Steven C. Taylor(4)......................................... 2,092,064 15.0%
Beltech, Inc.(5)............................................ 1,000,000 7.2%
Oliver Corporation(6)....................................... 800,000 5.7%
Wellington Management Co.(7)................................ 777,500 5.6%
Howard Oringer(8)........................................... 191,833 1.4%
Henry L. Tinker(9).......................................... 206,137 1.5%
John C. Batty(10)........................................... 46,726 *
Robert F. Griffith(11)...................................... 77,555 *
David L. Lyon(12)........................................... 52,708 *
John A. McGuire............................................. -- --
All executive officers and directors as a group (12
persons)(13).............................................. 5,856,494 41.0%
</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 October 1, 1998 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) Percentage beneficially owned is based on 13,921,946 shares of Common Stock
outstanding as of October 1, 1998.
(3) Includes (a) 1,322,369 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) 1,550 shares owned by Baytech Associates, a
California general partnership in which Mr. Belden has a 50% general
partner interest; (c) 746,208 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 746,208 of
these shares.
(4) Includes (a) 1,290,514 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) 1,550 shares owned by
Baytech Associates, a California general partnership interest 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.
(5) Beltech, Inc., 940 Southwood Blvd., Suite 201, Incline Village, NV 89452.
2
<PAGE> 5
(6) Oliver Corporation, 940 Southwood Blvd., Suite 201, Incline Village, NV
89452.
(7) As reported in Schedule 13G filed by Wellington Management Co., as of
December 31, 1997, includes 777,500 shares as to which Wellington
Management Co. shared voting and sole investment power. Wellington
Management Co., 75 State Street, Boston, MA 02109
(8) Includes options to purchase 25,833 shares exercisable within 60 days of
October 1, 1998.
(9) Includes options to purchase 118,749 shares exercisable within 60 days of
October 1, 1998.
(10) Includes options to purchase 39,583 shares exercisable within 60 days of
October 1, 1998.
(11) Includes options to purchase 76,978 shares exercisable within 60 days of
October 1, 1998.
(12) Includes options to purchase 47,708 shares exercisable within 60 days of
October 1, 1998.
(13) Includes options to purchase 363,851 shares exercisable within 60 days of
October 1, 1998.
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 the Company believes
that, during fiscal 1998, all reporting persons complied with all applicable
filing requirements except as follows: Messrs. Tinker and Lyon each filed one
late Form 4.
PROPOSAL NO. 1
ELECTION OF DIRECTORS
The number of directors on the Board is currently fixed at five. 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 serve staggered three-year terms. The Board is composed
of one (1) Class I director (David L. Lyon), two (2) Class II directors (Howard
Oringer and John A. McGuire), and two (2) Class III directors (Leigh S. Belden
and Steven C. Taylor), whose terms will expire upon the election and
qualification of directors at the Annual Meeting of Stockholders to be held in
2000, 1998 and 1999, respectively.
At the Annual Meeting, the stockholders will elect two (2) Class II
directors to serve a three (3) year term until the 2001 Annual Meeting of
Stockholders or until their respective successors are elected or appointed and
qualified or until the directors' earlier resignation or removal. In the event
either of the nominees is unable or unwilling to serve as a nominee, the proxies
may be voted for any substitute nominee designated by the present Board of
Directors or the proxy holders to fill such vacancy. The Board of Directors has
no reason to believe that the persons named will be unable or unwilling to serve
as a nominee or as a director if elected.
Certain information about Howard Oringer and John A. McGuire, the Class II
director nominees, is furnished below.
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, 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. Mr. Oringer is a member of the Board of
Directors of Tekelec, Inc. and MAS Technology, Ltd.
3
<PAGE> 6
Mr. McGuire became a Director of the Company in July 1998. Mr. McGuire is
currently the Chairman and Chief Executive Officer of Ellipsys Technology, Inc.,
a telecommunications company. From 1994 to 1996, Mr. McGuire was the Managing
Partner of J. McGuire and Associates, a management consulting firm. From 1991 to
1994, Mr. McGuire was the President of Telescience International, a
telecommunications product manufacturing company. Mr. McGuire received a B.S. in
Mathematics from the California State University.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE ELECTION OF THE NOMINEES
NAMED ABOVE.
THE BOARD OF DIRECTORS AND COMMITTEES
<TABLE>
<CAPTION>
DIRECTOR
NAME AGE PRINCIPAL OCCUPATION SINCE
---- --- -------------------- --------
<S> <C> <C> <C>
Leigh S. Belden............... 49 President, Chief Executive Officer and Director 1982
Steven C. Taylor.............. 52 Chief Technical Officer, Vice Chairman of the 1982
Board
Howard Oringer(1)(2).......... 56 Managing Director of Communications Capital Group 1987
David L. Lyon(1)(2)........... 50 President, Sage Strategies, Inc. 1996
John A. McGuire............... 63 President, Ellipsys Technology, Inc. 1998
</TABLE>
- ---------------
(1) Member of Audit Committee.
(2) Member of Compensation Committee.
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.
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, 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. Mr. Oringer is a member of the Board of
Directors of Tekelec, Inc. and MAS Technology, Ltd.
Dr. Lyon became a Director of the Company in April 1996. Dr. Lyon is
currently the President of Sage Strategies Inc., a management consulting firm
specializing in telecommunications. From March 1987 to March 1997, Dr. Lyon was
the President of Pacific Communications Services, Inc. (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.
Mr. McGuire became a Director of the Company in July 1998. Mr. McGuire is
currently the Chairman and Chief Executive Officer of Ellipsys Technology, Inc.,
a telecommunications company. From 1994 to 1996, Mr. McGuire was the Managing
Partner of J. McGuire and Associates, a management consulting firm. From 1991 to
1994, Mr. McGuire was the President of Telescience International, a
telecommunications manufacturing company. Mr. McGuire received a B.S. in
Mathematics from the California State University.
4
<PAGE> 7
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.
BOARD MEETINGS AND COMMITTEES
The Company's Board of Directors met four (4) times during fiscal 1998.
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. Howard Oringer and David
Lyon each receive a fee of $10,000 per month pursuant to oral consulting
agreements with the Company. All Non-employee 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, which held two (2) meetings during fiscal 1998,
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 which held two (2) meetings during fiscal 1998,
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").
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During fiscal year 1998, Mr. Oringer, Chairman of the Company's Board of
Directors and a consultant to the Company, and Dr. Lyon, a consultant to the
Company, served 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 issued by Mr.
Belden in favor of the Company in the amount of $800,000 due and payable in
September 1998. In February 1998 the Company's Board of Directors extended the
repayment of principal and interest under this note to September 16, 1999. The
note was originally secured by 2,900,000 pledged shares (the "Original Pledged
Shares") held by Leigh S. Belden and Deborah Tinker Belden, Trustees U/A Dated
December 9, 1988, 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 the Original Pledged Shares 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. Subsequent to the Company's initial
public offering in June 1996, the number of shares subject to the security
interest was further reduced to 130,398.
In January 1998, the Company provided Mr. Belden with a loan facility not
to exceed $500,000 at an interest rate of 6% per annum. Mr. Belden borrowed
$475,000, which he subsequently repaid in March 1998. The facility expired on
June 26, 1998.
In September 1998, the Company provided Mr. Belden with a loan facility not
to exceed $1,000,000 at an interest rate of 6% per annum. As of October 8, 1998,
Mr. Belden had borrowed $475,000 under that facility. All loans made pursuant to
the facility are due on or before December 31, 1998.
In October 1998, the Company guaranteed $500,000 in borrowings made by Mr.
Belden from CivicBank of Commerce and agreed to provide Mr. Belden with a loan
facility not to exceed $3,000,000, including the guaranty. All loans made
pursuant to this loan facility will be due on or before December 31, 1999. This
loan
5
<PAGE> 8
facility will be secured by a pledge of Verilink Common Stock having a fair
market value equal to at least twice the principal amount of the borrowings
under this loan facility.
In fiscal 1998, Mr. Oringer received a total of $120,000 in his capacity as
a consultant to the Company and $25,368 in auto lease and operating expense
reimbursement. 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.
In fiscal 1998, Dr. Lyon received a total of $120,000 in his capacity as
consultant to the Company and as reimbursement of Company-related expenses. The
Company currently pays a fee of $2,500 per month to Dr. Lyon pursuant to an oral
consulting agreement, under which Dr. Lyon provides part-time consulting
services to the Company in the areas of general business advice, strategic
planning and sales and marketing strategy.
In 1997, in order to facilitate his relocation, the Company loaned Robert
F. Griffith, Vice President, Sales, a total of $211,825 on an interest-free
basis. This note is due in full on June 1, 2002.
The Company leases its facility located at 145 Baytech Drive in San Jose,
California from Baytech Associates, a California general partnership ("Baytech")
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 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 a total of $427,838 in lease payments in fiscal 1998 for the facility on
Baytech Drive.
The Company subleases additional space from Baytech at 161 Nortech Drive.
The sublease between the Company and Baytech commenced in December 1996 and
expires in December 2001. In fiscal 1998, the Company paid Baytech's lessor a
total of $156,000 in lease payments for the facility on Nortech Drive. In
September 1998, the Company agreed to lease an additional 16,000 square feet of
space at 161 Nortech Drive and has agreed to loan Baytech funds for leasehold
improvements and rent obligations at 161 Nortech Drive, in consideration of
certain lease concessions made by Baytech to the Company. The loan to Baytech
will be evidenced by a promissory note bearing interest at prime plus one
percent (1%) and will be payable out of the net lease proceeds received by
Baytech from leasing the space not occupied by the Company. In addition, the
Company has guaranteed Baytech's obligations under its lease of the premises at
161 Nortech Drive.
During fiscal 1998 the Company paid a total of $1,260,149 to RC Networks in
consideration for consulting services provided to the Company. Baytech holds an
8.7% ownership interest in RC Networks.
6
<PAGE> 9
EXECUTIVE COMPENSATION
COMPENSATION TABLES
The following tables set forth certain information concerning compensation
of and stock options held by the Company's Chief Executive Officer and each of
the four other most highly compensated executive officers of the Company
(collectively, the "Named Executive Officers").
SUMMARY COMPENSATION TABLE
The following table, together with the footnotes thereto, summarizes the
total compensation for fiscal 1998 of (i) the Chief Executive Officer, and (ii)
the four other most highly compensated executive officers of the Company who
were serving as such at 1998 fiscal year end (collectively, the "Named
Officers"), as well as the total compensation paid to each Named Officer for the
Company's two previous fiscal years, if applicable.
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
--------------------------------- ------------
OTHER SECURITIES
ANNUAL UNDERLYING ALL OTHER
FISCAL SALARY BONUS COMPENSATION OPTIONS COMPENSATION
NAME AND PRINCIPAL POSITION YEAR ($)(1) ($)(2) ($)(3) (#)(4) ($)
--------------------------- ------ -------- ------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Leigh S. Belden................. 1998 $245,000 $ -- $ -- -- $92,820(5)
President, Chief Executive 1997 245,000 -- -- -- 21,923(5)
Officer and Director 1996 245,000 -- 50,000 -- 86,300(5)
Steven C. Taylor................ 1998 245,000 -- -- -- 67,764(5)
Chief Technical Officer, 1997 245,000 -- -- -- 36,666(5)
Vice Chairman of the 1996 245,000 -- 45,400 -- 83,800(5)
Board of Directors
Robert F. Griffith.............. 1998 180,000 80,000(8) -- 10,000 65,816(6)(7)
Vice President, Sales 1997 180,000 80,000 -- 30,000 33,757(6)(7)
1996 6,923 -- -- 115,000 --
Henry L. Tinker................. 1998 179,000 25,000 -- 60,000 83,764(6)(9)
Vice President, Operations 1997 179,000 -- -- 150,000 41,922(6)
1996 179,000 27,000 -- -- 28,700(6)
John C. Batty................... 1998 180,000 30,000 -- 10,000 32,823(6)
Vice President, Finance and 1997 20,077 -- -- 100,000 1,540(6)
Chief Financial Officer 1996 -- -- -- -- --
</TABLE>
- ---------------
(1) The amounts disclosed in this column include amounts deferred by the Named
Executive Officers pursuant to the Company's 401(k) Investment/Retirement
Plan (the "401(k) Plan").
(2) The amounts disclosed in this column represent bonus amounts in the year
earned.
(3) The amounts disclosed in this column represent amounts paid by the Company
as reimbursement for the payment of income taxes.
(4) The stock options listed in the table include the options to purchase Common
Stock of the Company.
(5) This amount primarily represents life insurance premiums, retirement
benefits, reimbursement of medical expenses, auto lease or auto allowances
and operating expenses paid by the Company.
(6) This amount primarily represents auto lease or auto allowances and operating
expenses, 401(k) Plan matching contributions, life insurance premiums and
reimbursement of medical expenses paid by the Company.
(7) Additionally, includes payment by the Company of relocation expenses in the
amounts of $43,064 for fiscal year 1998 and $10,000 for fiscal year 1997.
(8) $25,000 of this amount is payable upon completion of certain financial
objectives of the Company.
(9) Additionally, includes payment by the Company of housing expenses in the
amount of $36,000.
7
<PAGE> 10
OPTION GRANTS IN LAST FISCAL YEAR
The following table provides certain information with respect to the grant
of stock options under the Company's Amended and Restated 1993 Stock Option Plan
(the "Plan") to each of the Named Executive Officers during the fiscal year
ended June 28, 1998.
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE VALUE
NUMBER OF % OF TOTAL AT ASSUMED ANNUAL RATE OF
SECURITIES OPTIONS STOCK APPRECIATION FOR
UNDERLYING GRANTED TO EXERCISE OPTION TERM(1)
OPTIONS EMPLOYEES IN PRICE PER EXPIRATION --------------------------
NAME GRANTED FISCAL YEAR SHARE DATE 5% 10%
---- ---------- ------------ --------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Leigh S. Belden.................. -- -- -- -- -- --
Steven C. Taylor................. -- -- -- -- -- --
Robert F. Griffith............... 10,000 1.64% $6.750 12/02/07 $ 42,500 $107,580
Henry L. Tinker.................. 10,000 1.64% 6.750 12/02/97 42,500 107,580
50,000 8.21% 6.375 01/07/08 200,460 508,005
John C. Batty.................... 10,000 1.64% 6.750 12/02/07 42,500 107,580
</TABLE>
- ---------------
(1) The potential realizable value portion of the foregoing table illustrates
value that might be realized upon exercise of the options immediately prior
to the expiration of their terms, assuming the specified compounded rates of
appreciation on the Company's Common Stock over the term of the options.
Actual gains, if any, on stock option exercise are dependent upon a number
of factors, including the future performance of the Common Stock, overall
stock market conditions, and the timing of option exercises, if any. There
can be no assurance that amounts reflected in this table will be achieved.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
The following table provides the specified information concerning exercises
of options to purchase the Company's Common Stock in fiscal year 1998, and
unexercised options held as of June 28, 1998, by the Named Executive Officers.
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS AT IN-THE-MONEY OPTIONS AT
SHARES FISCAL YEAR END(#) FISCAL YEAR END($)(2)
ACQUIRED ON VALUE --------------------------- ---------------------------
NAME EXERCISE(#) REALIZED(1)($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- -------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Leigh S. Belden........... -- -- -- -- -- --
Steven C. Taylor.......... -- -- -- -- -- --
Robert F. Griffith........ -- -- 64,999 90,001 $43,124 $ 58,126
Henry L. Tinker........... -- -- 95,833 114,167 -- 108,750
John C. Batty............. -- -- 29,166 80,834 72,915 192,085
</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 on the exercise date.
(2) The value of "in-the-money" stock options represents the positive spread
between the exercise price of options and $8.25, the price per share of the
underlying shares of Common Stock, as reported on the Nasdaq National Market
on June 26, 1998 (the last trading day of fiscal year 1998).
CHANGE OF CONTROL SEVERANCE BENEFITS AGREEMENTS AND EMPLOYMENT AGREEMENTS
The Company has entered into a Change of Control Severance Benefits
Agreement (the "Agreement") with the following executive officers: Leigh S.
Belden, President and Chief Executive Officer; Steven C. Taylor, Vice Chairman;
John C. Batty, Vice President Finance and Chief Financial Officer; Robert F.
Griffith, Vice President Sales; Andrea C. Potts, Vice President Human Resources;
Stephen M. Tennis, Vice President, General Counsel; and Henry L. Tinker, Vice
President Operations. All capitalized terms in the description
8
<PAGE> 11
below have the same meaning as in the Agreement. Under the terms of the
Agreement if the executive's employment terminates due to an Involuntary
Termination or a Voluntary Termination for Good Reason within 24 months
following a Change of Control, the termination will be a Covered Termination and
the Company shall (i) pay the Executive a lump sum payment equal to 100% of the
sum of Annual Base Pay and Annual Bonus, subject to any applicable withholding
of federal, state or local taxes, (ii) fully vest all stock options held by the
executive and the period of time to exercise such stock options following a
Covered Termination may be extended, and (iii) continue Welfare Benefit coverage
for the executive and his covered dependents under any Welfare Benefit plan or
program maintained by the Company on the same terms and conditions (including
cost to the executive) as in effect immediately prior to the Covered
Termination, for one (1) year following the Covered termination. Upon the
occurrence of a Covered Termination, and prior to the receipt of any benefits
under the Agreement, the executive shall execute an Employee Agreement and
Release (the "Release"). Such Release shall specifically relate to all of the
executive's rights and claims in existence at the time of such execution and
shall confirm the executive's obligations under the Company's standard form of
proprietary information agreement.
The Company has employment agreements with Leigh S. Belden, the Company's
President and Chief Executive Officer, and Steven C. Taylor, the Company's Chief
Technical Officer that upon termination without cause require the Company to
retain them as consultants for a period of one year at the same base salary,
bonus and benefits received during the year preceding termination.
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
adopted a Key Employee Incentive Plan designed to reward the Company's executive
officers if certain corporate financial goals and individual performance goals
were achieved in fiscal 1998. No payments were made under the plan as the
Company failed to meet the minimum threshold for such payments. Nonetheless, the
Compensation Committee believed that certain executive officers had made
significant contributions to the Company during fiscal 1998 and awarded non-plan
bonuses to such officers.
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 basis for the Chief
Executive Officer's compensation 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 28, 1998, no executive officer of the
Company received $1 million in total compensation, nor does the Company
anticipate that compensation payable to any executive officer will exceed $1
million for fiscal 1999.
Compensation Committee
Howard Oringer
David L. Lyon, Ph.D.
October 20, 1998
9
<PAGE> 12
PERFORMANCE GRAPH
The following chart compares the cumulative total stockholder return on the
Company's Common Stock since the date of the Company's initial public offering
on June 10, 1996 (the "IPO") through the end of the Company's last fiscal year
(June 28, 1998), with the cumulative total return on The Nasdaq Stock Market
U.S. Index and the Hambrecht & Quist 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>
Verilink Nasdaq Stock Hambrecht & Quist
Corporation Market (U.S.) Technology
<S> <C> <C> <C>
10-Jun-96 100 100 100
Jun-96 159 97 95
Sep-96 153 100 101
Dec-96 208 105 108
Mar-97 38 99 103
Jun-97 67 117 124
Sep-97 58 137 150
Dec-97 38 129 127
Mar-98 69 151 153
Jun-98 52 155 157
</TABLE>
This Section is not "soliciting material," is not deemed filed with the SEC
and is not to be incorporated by reference in any filing of the Company under
the 1933 Act or the 1934 Act whether made before or after the date hereof and
irrespective of any general incorporation language in any such filing.
10
<PAGE> 13
PROPOSAL NO. 2
APPROVAL AND RATIFICATION OF AMENDMENT
TO THE COMPANY'S AMENDED AND RESTATED 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 on July 29, 1998 amending the
Company's Amended and Restated 1993 Stock Option Plan (the "Option Plan") to
increase the number of shares authorized for issuance under the Option Plan by
1,000,000 shares, from 4,050,000 to an aggregate of 5,050,000 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.
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
Option Plan is necessary for the Company to remain competitive in its
compensation practices. As of the Record Date, there were remaining
approximately 199,353 shares authorized and available for issuance under the
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 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 Option Plan to increase the number of shares of Common Stock of the Company
available for issuance thereunder by 1,000,000 shares, from 4,050,000 to an
aggregate of 5,050,000 shares.
AMENDED PLAN BENEFITS
As of the date of this Proxy Statement, no non-employee directors ("Outside
Directors") and no associates of any director, executive officer or nominee for
director has been granted any options subject to shareholder approval of the
proposed amendment. The benefits to be received pursuant to the Option Plan
amendment by the Company's directors, executive officers and employees are not
determinable at this time.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE RATIFICATION AND APPROVAL
OF THE AMENDMENT TO THE COMPANY'S OPTION PLAN.
A general description of the principal terms of the Option Plan is set
forth below. Although the Company believes that the following description
provides a fair summary of the material terms of the Option Plan, the
description is qualified in its entirety by the text of the 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 Option Plan.
GENERAL DESCRIPTION OF OPTION PLAN.
The following summary of the Option Plan, including the proposed amendment,
is qualified in its entirety by the specific language of the Option Plan, a copy
of which is available to any stockholder upon request.
The Company's Option Plan was initially approved by the Board of Directors
in March 1993 and initially approved by the stockholders in November 1993. In
September 1996 the Board of Directors approved, and in November 1996 the
stockholders ratified an amendment to the Option Plan to increase the number of
shares reserved for issuance thereunder by 750,000 shares from 3,300,000 to
4,050,000 shares. As of June 28, 1998, the number of executive officers,
employees, consultants and directors of the Company and its subsidiaries that
were eligible to receive grants under the Option Plan was approximately 230
persons. Options to purchase 3,652,287 shares had been granted under the Option
Plan of which options to purchase 1,833,134 shares were outstanding
The purpose of the 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 and to promote the
financial success and progress of the Company by providing an opportunity to
purchase
11
<PAGE> 14
shares of the Company's Common Stock pursuant to the exercise of options granted
under the 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. On July 29, 1998, an additional 1,000,000
shares of Common Stock were reserved for issuance under the Option Plan making
the total number of shares authorized in the Option Plan 5,050,000, of which, at
June 28, 1998, 397,463 were available for future grant.
In April 1996, the 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 Option
Plan other than Automatic Grants.
The Board of Directors or a committee designated by the Board of Directors
is authorized to administer the 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 Option Plan is being administered by the Compensation
Committee, 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 Option Plan may not
exceed 10 years.
The exercise price of an incentive stock option granted under the 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
incentive stock option granted must equal at least 110% of the fair market value
on the grant date and 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
Option Plan are immediately exercisable; however, the shares of Common Stock
issued upon exercise of such options typically vest over four years at the
annual rate of 25% of the total shares granted on the anniversary of the grant
date, 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 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 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
Option Plan may be amended at any time by the Board of Directors, although
certain amendments require stockholder approval. The Option Plan will terminate
on March 1, 2003 unless earlier terminated by the Board of Directors.
12
<PAGE> 15
CERTAIN FEDERAL INCOME TAX CONSEQUENCES.
The following summarizes only the federal income tax consequences of stock
options granted under the Option Plan. State and local tax consequences may
differ.
The grant of a nonqualified stock option under the Option Plan will not
result in any federal income tax consequences to the optionee or to the Company.
Upon exercise of a nonqualified stock option, the optionee is subject to income
taxes at the rate applicable to ordinary compensation income on the difference
between the option price and the fair market value of the shares on the date of
exercise. This income is subject to withholding for federal income and
employment tax purposes. The Company is entitled to an income tax deduction in
the amount of the income recognized by the optionee. Any gain or loss on the
optionee's subsequent disposition of the shares will receive long or short-term
capital gain or loss treatment depending on whether the shares are held for more
or not more than one year, respectively, following exercise. The Company does
not receive a tax deduction for any such gain. The maximum marginal rate at
which ordinary income is taxed to individuals is currently 39.6% and the maximum
rate at which long-term capital gains are taxed is 28%. For shares held more
than eighteen months, maximum rate at which long-term capital gains are taxed
falls to 20%.
The grant of an incentive stock option ("ISO") under the Option Plan will
not result in any federal income tax consequences to the optionee or to the
Company. An optionee recognizes no federal taxable income upon exercising an ISO
(subject to the alternative minimum tax rules discussed below), and the Company
receives no deduction at the time of exercise. In the event of a disposition of
stock acquired upon exercise of an ISO, the tax consequences depend upon how
long the optionee has held the shares. If the optionee does not dispose of the
shares within two years after the ISO was granted, nor within one year after the
ISO was exercised and shares were purchased, the optionee will recognize a
long-term capital gain (or loss) equal to the difference between the sale price
of the shares and the exercise price. The Company is not entitled to any
deduction under these circumstances.
If the optionee fails to satisfy either of the foregoing holding periods,
he or she must recognize ordinary income in the year of the disposition
(referred to as a "disqualifying disposition"). The amount of such ordinary
income generally is the lesser of (i) the difference between the amount realized
on the disposition and the exercise price, or (ii) the difference between the
fair market value of the stock on the exercise date and the exercise price. Any
gain in excess of the amount taxed as ordinary income will be treated as a
long-or short-term capital gain, depending on the holding period. The Company,
in the year of the disqualifying disposition, is entitled to a deduction equal
to the amount of ordinary income recognized by the optionee.
The "spread" under an ISO -- i.e., the difference between the fair market
value of the shares at exercise and the exercise price - is classified as an
item of adjustment in the year of exercise for purposes of the alternative
minimum tax.
Payment of Withholding Taxes. The Company may withhold, or require a
participant to remit to the Company, an amount sufficient to satisfy any
federal, state or local withholding tax requirements associated with awards
under the Option Plan.
The foregoing summarizes only the federal income tax consequences to
participants and the Company of the acquisition and disposition of Restricted
Shares and Stock Bonuses under the Plan. State and local tax consequences may
differ.
PROPOSAL NO. 3
APPROVAL AND RATIFICATION OF AMENDMENT
TO THE COMPANY'S 1996 EMPLOYEE STOCK PURCHASE PLAN
The Company's stockholders are being asked to act upon a proposal to
approve the action taken by the Board of Directors on July 29, 1998 amending the
Company's 1996 Employee Stock Purchase Plan (the "Purchase Plan") to increase
the number of shares authorized for issuance under the Purchase Plan by
13
<PAGE> 16
200,000 shares, from 300,000 to an aggregate of 500,000 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.
PROPOSED AMENDMENT
Increase in Available Shares. As of the Record Date, there were remaining
approximately 75,396 shares authorized and available for issuance under the
Purchase 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 purchase under the Purchase Plan, except to the extent that shares
are not purchased during the current offering period due to the withdrawal of a
plan participant. For this reason, the Board of Directors has approved an
amendment to the Purchase Plan to increase the number of shares of Common Stock
of the Company available for issuance thereunder by 200,000 shares, from 300,000
to an aggregate of 500,000 shares.
AMENDED PLAN BENEFITS
As of the date of this Proxy Statement, no executive officer or employee of
the Company has been granted any rights to purchase stock pursuant to the
Purchase Plan subject to shareholder approval of the proposed amendment. The
benefits to be received pursuant to the Purchase Plan amendment by the Company's
executive officers and employees are not determinable at this time.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE RATIFICATION AND APPROVAL
OF THE AMENDMENT TO THE COMPANY'S PURCHASE PLAN.
A general description of the principal terms of the Purchase Plan is set
forth below. Although the Company believes that the following description
provides a fair summary of the material terms of the Purchase Plan, the
description is qualified in its entirety by the text of the Purchase 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 Purchase Plan.
GENERAL DESCRIPTION OF PURCHASE PLAN.
The Purchase Plan was adopted by the Board and the stockholders in April
1996. At that time a total of 300,000 shares of Common Stock were reserved for
issuance under the Purchase Plan. The purpose of the Purchase Plan is to provide
employees of the Company who participate in the Plan with an opportunity to
purchase Common Stock of the Company through payroll deductions. On July 29,
1998, subject to stockholder approval, the Board of Directors approved an
amendment to the Purchase Plan increasing the number of shares reserved for
issuance thereunder by 200,000 shares from 300,000 shares to 500,000 shares. As
of June 28, 1998, 149,786 shares of Common Stock had been sold pursuant to the
Purchase Plan at a weighted average price of $6.84 per share, with 150,214
shares available for future issuance under the Purchase Plan.
The Purchase Plan, which is intended to qualify under section 423 of the
Code, provides for successive offering periods with a maximum duration of 24
months. Each offering period is divided into consecutive semi-annual purchase
periods.
The Purchase Plan is administered by the Compensation Committee of the
Board of Directors. The Board of Directors has the authority to change the
commencement date of future offering periods. All individuals employed by the
Company or its subsidiaries on the commencement date of an offering period are
eligible to participate in the Purchase Plan if they are employed by the Company
for at least 20 hours per week and more than five months per calendar year,
provided that any individual who holds 5% or more of the Company's Common Stock
(directly or upon the exercise of options) is not eligible to participate. The
Purchase Plan permits eligible employees to purchase Common Stock through
payroll deductions, which may not exceed 10% of an employee's total
compensation, including bonuses and sales commissions (or, if lower, $25,000 in
any calendar year), at a price equal to 85% of the lower of the closing sale
price for the Common Stock reported on the Nasdaq National Market at the
beginning of the offering period and the end of each
14
<PAGE> 17
respective purchase period within the offering period. Employees may end their
participation in the offering at any time during the offering period, and
participation ends automatically upon termination of employment with the
Company.
CERTAIN FEDERAL TAX CONSEQUENCES.
The following summarizes only the federal income tax consequences of
participation under the Purchase Plan. State and local tax consequences may
differ.
The Purchase Plan, and the right of participants to make purchases
thereunder, is intended to qualify under the provisions of Section 421 and 423
of the Code. Under these provisions, no income will be taxable to a participant
at the time of the purchase of shares. Upon disposition of the shares, the
participant will generally be subject to tax and the amount of the tax will
depend upon the participant's holding period. If the shares have been held by
the participant for more than two years after the purchase date, the lesser of
(i) 15% of the fair market value of the shares on the purchase date was granted
or (ii) the difference between the fair market value of the shares on the date
of the disposition of the shares and the purchase price will be treated as
ordinary income, and any further gain will be treated as long-term capital gain.
If the shares are disposed of before the expiration of these holding periods,
the excess of the fair market value of the shares on the exercise date over the
purchase price will be treated as ordinary income, and any further gain or loss
on such disposition will be long-term or short-term capital gain or loss,
depending on the holding period. The Company is not entitled to a deduction for
amounts taxed as ordinary income or capital gain to a participant except to the
extent of ordinary income reported by participants upon disposition of shares
within two years from date of grant or within one tax year of the date of
purchase.
PROPOSAL NO. 4
RATIFICATION OF APPOINTMENT OF INDEPENDENT ACCOUNTANTS
PricewaterhouseCoopers 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 1999. 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 PricewaterhouseCoopers LLP as the independent accountants for the
1999 fiscal year.
Representatives of PricewaterhouseCoopers 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 PRICEWATERHOUSECOOPERS LLP AS THE COMPANY'S INDEPENDENT
ACCOUNTANTS FOR FISCAL YEAR 1999.
STOCKHOLDER PROPOSALS/STOCKHOLDER NOMINATIONS FOR DIRECTOR
Stockholder proposals submitted pursuant to Rule 14a-8 under the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and intended to be
presented at the Company's 1999 Annual Meeting of Stockholders must be received
by the Company not later than June 16, 1999 in order to be considered for
inclusion in the Company's proxy materials for that meeting.
The Board of Directors does not have a nominating committee or a committee
performing the functions of a nominating committee. Stockholders wishing to
directly nominate candidates for election to the Board of Directors ("Director
Nominations") and for the conduct of other business to be brought before an
annual meeting ("Other Business"), must do so in accordance with the Company's
Certificate of Incorporation (the "Certificate") and Bylaws.
15
<PAGE> 18
To be timely, notice of Director Nominations to be brought before an annual
meeting or special meeting must be received by the Secretary of the Company, at
the address set forth below, 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 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. The Certificate
also provides that notice of Director 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.
To be timely, notice of Other Business to be brought before an annual
meeting or special meeting must be received by the Secretary of the Company, at
the address set forth below, not later than ninety days prior to the meeting
date or, if less than one hundred days notice or prior public disclosure of the
date of the meeting is given to or made to stockholders, notice of Other
Business must be received no later than the close of business on the tenth day
following the day on which such notice of the date of the annual meeting or
special meeting was mailed or made public. The Company has not yet publicly
announced the date of the 1999 Annual Meeting of Stockholders.
Stockholder proposals for Other Business or Director Nominations should be
mailed to Dannelle M. Emmett, Secretary, Verilink Corporation, 145 Baytech
Drive, San Jose, California, 95134
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
/s/ LEIGH S. BELDEN
--------------------------------------
Leigh S. Belden,
President, Chief Executive Officer
and Director
October 20, 1998
San Jose, California
16
<PAGE> 19
SKU No. 1526-PS-98
<PAGE> 20
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
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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 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 5,050,000 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,
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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.
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
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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 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, 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
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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.
(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
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<PAGE> 25
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 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
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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 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;
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(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 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.
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EXHIBIT B
VERILINK CORPORATION
1996 EMPLOYEE STOCK PURCHASE PLAN
The following constitute the provisions of the 1996 Employee Stock
Purchase Plan of Verilink Corporation.
1. Purpose. The purpose of the Plan is to provide employees of the
Company and its Designated Subsidiaries with an opportunity to purchase Common
Stock of the Company through accumulated payroll deductions. It is the intention
of the Company to have the Plan qualify as an "Employee Stock Purchase Plan"
under Section 423 of the Code. The provisions of the Plan, accordingly, shall be
construed so as to extend and limit participation in a manner consistent with
the requirements of that section of the Code.
2. Definitions.
(a) "Accrual Period" shall mean a period of approximately six months,
commencing on January 1 and July 1 of each year and terminating on the next
following June 30 or December 31, respectively; provided, however, that the
first Accrual Period shall commence on the Effective Date and shall end on
December 31, 1996.
(b) "Board" shall mean the Board of Directors of the Company.
(c) "Code" shall mean the Internal Revenue Code of 1986, as amended.
(d) "Common Stock" shall mean the common stock of the Company.
(e) "Company" shall mean Verilink Corporation.
(f) "Compensation" shall mean an Employee's base salary from the
Company or one or more Designated Subsidiaries, including such amounts of sales
commissions and base salary as are deferred by the Employee (i) under a
qualified cash or deferred arrangement described in Section 401(k) of the Code,
or (ii) to a plan qualified under Section 125 of the Code. Compensation does not
include overtime, bonuses, reimbursements or other expense allowances, fringe
benefits (cash or noncash), moving expenses, deferred compensation, and
contributions (other than contributions described in the first sentence) made on
the Employee's behalf by the Company or one or more Designated Subsidiaries
under any employee benefit or welfare plan now or hereafter established.
(g) "Designated Subsidiaries" shall mean the Subsidiaries which have
been designated by the Board from time to time in its sole discretion as
eligible to participate in the Plan.
(h) "Effective Date" shall mean the effective date of the
Registration Statement relating to the Company's initial public offering of its
Common Stock. However,
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should any Designated Subsidiary become a Participating Company in the Plan
after such date, then such entity shall designate a separate Effective Date with
respect to its employee-participants.
(i) "Employee" shall mean any individual who is engaged in the
rendition of personal services to the Company or a Designated Subsidiary for
Compensation. For purposes of the Plan, the employment relationship shall be
treated as continuing intact while the individual is on sick leave or other
leave of absence approved by the Company. Where the period of leave exceeds 90
days and the individual's right to reemployment is not guaranteed either by
statute or by contact, the employment relationship will be deemed to have
terminated on the 91st day of such leave.
(j) "Enrollment Date" shall mean the first day of each Purchase
Period.
(k) "Exercise Date" shall mean the last day of each Accrual Period.
(l) "Fair Market Value" shall mean, as of any date, the value of
Common Stock determined as follows:
(1) If the Common Stock is listed on any established stock
exchange or a national market system, including without limitation the
National Market System of the National Association of Securities
Dealers, Inc. Automated Quotation ("NASDAQ") System, its Fair Market
Value shall be the closing selling price for such stock on the principal
securities exchange or national market system on which the Common Stock
is at the time listed for trading. If there are no sales of Common Stock
on that date, then the closing selling price for the Common Stock on the
next preceding day for which such closing selling price is quoted shall
be determinative of Fair Market Value; or,
(2) If the Common Stock is not traded on an exchange or a
national market system, its Fair Market Value shall be determined in
good faith by the Board, and such determination shall be conclusive and
binding on all persons.
(m) "Participant" means an Employee of the Company or Designated
Subsidiary who is actively participating in the Plan.
(n) "Plan" shall mean this Employee Stock Purchase Plan.
(o) "Plan Administrator" shall mean either the Board or a committee
of the Board that is responsible for the administration of the Plan.
(p) "Purchase Period" shall mean a purchase period established
pursuant to paragraph 4 hereof.
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(q) "Purchase Price" shall mean an amount equal to 85% of the Fair
Market Value of a share of Common Stock on the Enrollment Date or on the
Exercise Date, whichever is lower.
(r) "Reserves" shall mean the number of shares of Common Stock
covered by each option under the Plan which have not yet been exercised and the
number of shares of Common Stock which have been authorized for issuance under
the Plan but not yet placed under option.
(s) "Subsidiary" shall mean a corporation, domestic or foreign, of
which not less than 50% of the voting shares are held by the Company or a
Subsidiary, whether or not such corporation now exists or is hereafter organized
or acquired by the Company or a Subsidiary.
3. Eligibility.
(a) General. Any Employee who is employed by the Company on a given
Enrollment Date shall be eligible to participate in the Plan for the Purchase
Period commencing with such Enrollment Date.
(b) Limitations on Grant and Accrual. Any provisions of the Plan to
the contrary notwithstanding, no Employee shall be granted an option under the
Plan (i) if, immediately after the grant, such Employee (taking into account
stock owned by any other person whose stock would be attributed to such Employee
pursuant to Section 424(d) of the Code) would own stock and/or hold outstanding
options to purchase stock possessing five percent (5%) or more of the total
combined voting power or value of all classes of stock of the Company or of any
Subsidiary of the Company, or (ii) which permits his or her rights to purchase
stock under all employee stock purchase plans of the Company and its
Subsidiaries to accrue at a rate which exceeds Twenty-Five Thousand Dollars
($25,000) worth of stock (determined at the Fair Market Value of the shares at
the time such option is granted) for each calendar year in which such option is
outstanding at any time. The determination of the accrual of the right to
purchase stock shall be made in accordance with Section 423(b)(8) of the Code
and the regulations thereunder.
(c) Other Limits on Eligibility. Notwithstanding paragraph (a) above,
the following Employees, as defined in paragraph 2, shall not be eligible to
participate in the Plan for any relevant Purchase Period: (i) employees whose
customary employment is 20 hours or less per week; (ii) employees whose
customary employment is for not more than 5 months in any calendar year; and
(iii) employees who are subject to rules or laws of a foreign jurisdiction that
prohibit or make impractical the participation of such employees in the Plan.
4. Purchase Periods.
(a) The Plan shall be implemented through overlapping or consecutive
Purchase Periods until such time as (i) the maximum number of shares of Stock
available for issuance under the Plan shall have been purchased or (ii) the Plan
shall have been sooner terminated in accordance with paragraph 19 hereof. The
maximum duration of a Purchase Period
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shall be twenty-seven months. Initially, the Plan shall be implemented through
overlapping Purchase Periods of twenty-four months' duration commencing each
January 1 and July 1 following the Effective Date (except that the initial
Purchase Period shall commence on the Effective Date and shall end on June 30,
1998). The Plan Administrator shall have the authority to change the length of
any Purchase Period subsequent to the initial Purchase Period by announcement at
least thirty (30) days prior to the commencement of the Purchase Period and to
determine whether subsequent Purchase Periods shall be consecutive or
overlapping.
(b) A Participant shall be granted a separate purchase right for each
Purchase Period in which he/she participates. The purchase right shall be
granted on the first day of the Purchase Period and shall be automatically
exercised in successive installments on the last day of each Accrual Period
ending within the Purchase Period.
(c) An Employee may participate in only one Purchase Period at a
time. Accordingly, except as provided in paragraph 4(d), an Employee who wishes
to join a new Purchase Period must withdraw from the current Purchase Period in
which he/she is participating and must also enroll in the new Purchase Period
prior to the commencement date for that period.
(d) If on the first day of any Accrual Period in a Purchase Period in
which an Employee is participating in the Plan the Fair Market Value of the
Company's Common Stock is less than the Fair Market Value of the Company's
Common Stock on the first day of the first Accrual Period within the Purchase
Period (after taking into account any adjustment during the Purchase Period
pursuant to paragraph 18(a)), the Purchase Period shall be terminated
automatically and the Employee shall be enrolled automatically in the new
Purchase Period which has its first Accrual Period commencing on that date,
provided the Employee is eligible to participate in the Plan on that date and
has not elected to terminate participation in the Plan.
(e) Except as specifically provided herein, the acquisition of Common
Stock through participation in the Plan for any Purchase Period shall neither
limit nor require the acquisition of Common Stock by a Participant in any
subsequent Purchase Period.
5. Participation.
(a) An eligible Employee may become a Participant in the Plan by
completing a subscription agreement authorizing payroll deductions in the form
of Exhibit A to this Plan and filing it with the Company's payroll office at
least fifteen (15) business days prior to the Enrollment Date for the Purchase
Period in which such participation will commence, unless a later time for filing
the subscription agreement is set by the Board for all eligible Employees with
respect to a given Purchase Period.
(b) Payroll deductions for a Participant shall commence with the
first period payroll following the Enrollment Date and shall end on the last
complete payroll period during the Purchase Period, unless sooner terminated by
the Participant as provided in paragraph 10.
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6. Payroll Deductions.
(a) At the time a Participant files his/her subscription agreement,
he/she shall elect to have payroll deductions made on each pay day during the
Offering Period in an amount not exceeding ten percent (10%) of the Compensation
which he/she receives on each pay day during the Offering Period.
(b) All payroll deductions made for a Participant shall be credited
to his/her account under the Plan and will be withheld in whole percentages
only. A Participant may not make any additional payments into such account.
(c) A Participant may discontinue his or her participation in the
Plan as provided in paragraph 10, or may decrease the rate of his/her payroll
deductions during the Purchase Period by completing or filing with the Company a
new subscription agreement authorizing a decrease in payroll deduction rate. The
decrease in rate shall be effective with the first full payroll period following
ten (10) business days after the Company's receipt of the new subscription
agreement unless the Company elects to process a given change in participation
more quickly. A Participant may increase the rate of his/her payroll deductions
for a future Purchase Period by filing with the Company a new subscription
agreement authorizing an increase in payroll deduction rate within ten (10)
business days (unless the Company elects to process a given change in
participation more quickly) before the commencement of the upcoming Purchase
Period. A Participant's subscription agreement shall remain in effect for
successive Purchase Periods unless terminated as provided in paragraph 10. The
Board shall be authorized to limit the number of participation rate changes
during any Purchase Period.
(d) Notwithstanding the foregoing, to the extent necessary to comply
with Section 423(b)(8) of the Code and paragraph 3(b) herein, a Participant's
payroll deductions may be decreased to 0% at such time during any Accrual Period
which is scheduled to end during the current calendar year (the "Current Accrual
Period") that the aggregate of all payroll deductions which were previously used
to purchase stock under the Plan in a prior Accrual Period which ended during
that calendar year plus all payroll deductions accumulated with respect to the
Current Accrual Period equal $21,250. Payroll deductions shall recommence at the
rate provided in such Participant's subscription agreement at the beginning of
the first Accrual Period which is scheduled to end in the following calendar
year, unless terminated by the Participant as provided in paragraph 10.
7. Grant of Option. On the first day of each Purchase Period, each
eligible Employee participating in such Purchase Period shall be granted an
option to purchase on each Exercise Date of such Purchase Period (at the
applicable Purchase Price) up to a number of shares of the Company's Common
Stock determined by dividing such Employee's payroll deductions accumulated
prior to such Exercise Date and retained in the Participant's account as of the
Exercise Date by the applicable Purchase Price; provided (i) that such purchase
shall be subject to the limitations set forth in Sections 3(b) and 12 hereof,
and (ii) the maximum number of shares of Common Stock an Employee shall be
permitted to purchase in any Accrual Period shall be 5,000 shares, subject to
adjustment as provided in Section 18 hereof. Exercise of the
5
<PAGE> 33
option shall occur as provided in Section 8, unless the Participant has
withdrawn pursuant to Section 10, and the option, to the extent not exercised,
shall expire on the last day of the Purchase Period.
8. Exercise of Option. Unless a Participant withdraws from the Plan
as provided in paragraph 10 below, his/her option for the purchase of shares
will be exercised automatically on each Exercise Date, and the maximum number of
full shares subject to option shall be purchased for such Participant at the
applicable Purchase Price with the accumulated payroll deductions in his/her
account. No fractional shares will be purchased; any payroll deductions
accumulated in a Participant's account which are not sufficient to purchase a
full share shall be carried over to the next Purchase Period, if the Participant
elects to participate in the next Purchase Period, or returned to the
Participant. Any amount remaining in a Participant's account following the
purchase of shares on the Exercise Date which exceeds the cost of one full share
of Common Stock on the Exercise Date shall be returned to the Participant and
shall not be carried over to the next Purchase Period. During a Participant's
lifetime, a Participant's option to purchase shares hereunder is exercisable
only by him/her.
9. Delivery. Upon receipt of a request from a Participant after each
Exercise Date on which a purchase of shares occurs, the Company shall arrange
the delivery to such Participant, as appropriate, of a certificate representing
the shares purchased upon exercise of his/her option.
10. Withdrawal; Termination of Employment.
(a) A Participant may withdraw all but not less than all the payroll
deductions credited to his/ her account and not yet used to exercise his/her
option under the Plan at any time by giving written notice to the Company in the
form of Exhibit B to this Plan. All of the Participant's payroll deductions
credited to his/her account will be paid to such Participant promptly after
receipt of notice of withdrawal, such Participant's option for the Purchase
Period will be automatically terminated, and no further payroll deductions for
the purchase of shares will be made during the Purchase Period. If a Participant
withdraws from a Purchase Period, payroll deductions will not resume at the
beginning of the succeeding Purchase Period unless the Participant delivers to
the Company a new subscription agreement.
(b) Upon a Participant's ceasing to be an Employee for any reason or
upon termination of a Participant's employment relationship (as described in
Section 2(i)), the payroll deductions credited to such Participant's account
during the Purchase Period but not yet used to exercise the option will be
returned to such Participant or, in the case of his/her death, to the person or
persons entitled thereto under paragraph 14, and such Participant's option will
be automatically terminated.
11. Interest. No interest shall accrue on the payroll deductions of a
Participant in the Plan.
6
<PAGE> 34
12. Stock.
(a) The maximum number of shares of the Company's Common Stock which
shall be made available for sale under the Plan shall be 500,000 shares, subject
to adjustment upon changes in capitalization of the Company as provided in
paragraph 18. If on a given Exercise Date the number of shares with respect to
which options are to be exercised exceeds the number of shares then available
under the Plan, the Company shall make a pro rata allocation of the shares
remaining available for purchase in as uniform a manner as shall be practicable
and as it shall determine to be equitable.
(b) A Participant will have no interest or voting right in shares
covered by his/her option until such shares are actually purchased on the
Participant's behalf in accordance with the applicable provisions of the Plan.
No adjustment shall be made for dividends, distributions or other rights for
which the record date is prior to the date of such purchase.
(c) Shares to be delivered to a Participant under the Plan will be
registered in the name of the Participant or in the name of the Participant and
his/her spouse.
13. Administration.
(a) Administrative Body. The Plan shall be administered by the Board
of the Company or a committee of members of the Board appointed by the Board.
The Board or its committee shall have full and exclusive discretionary authority
to construe, interpret and apply the terms of the Plan, to determine eligibility
and to adjudicate all disputed claims filed under the Plan. Every finding,
decision and determination made by the Board or its committee shall, to the full
extent permitted by law, be final and binding upon all parties. Members of the
Board who are eligible Employees are permitted to participate in the Plan except
to the extent limited by Subsection (b) of this Section 13.
(b) Rule 16b-3 Limitations. Notwithstanding the provisions of
Subsection (a) of this Section 13, in the event that Rule 16b-3 promulgated
under The Securities Exchange Act of 1934, as amended, or any successor
provision ("Rule 16b-3") provides specific requirements for the administrators
of plans of this type, the Plan shall be only administered by such a body and in
such a manner as shall comply with the applicable requirements of Rule 16b-3.
Unless permitted by Rule 16b-3, no discretion concerning decisions regarding the
Plan shall be afforded to any committee or person that is not "disinterested" as
that term is used in Rule 16b-3.
14. Designation of Beneficiary.
(a) Each Participant will file a written designation of a beneficiary
who is to receive any shares and cash, if any, from the Participant's account
under the Plan in the event of such Participant's death subsequent to an
Exercise Date on which the option is exercised but prior to delivery to such
Participant of such shares and cash. In addition, a Participant may file a
written designation of a beneficiary who is to receive any cash from the
Participant's account under the Plan in the event of such Participant's death
prior to exercise of the option. If a
7
<PAGE> 35
Participant is married and the designated beneficiary is not the spouse, spousal
consent shall be required for such designation to be effective.
(b) Such designation of beneficiary may be changed by the Participant
(and his or her spouse, if any) at any time by written notice. In the event of
the death of a Participant and in the absence of a beneficiary validly
designated under the Plan who is living at the time of such Participant's death,
the Company shall deliver such shares and/or cash to the executor or
administrator of the estate of the Participant, or if no such executor or
administrator has been appointed (to the knowledge of the Company), the Company,
in its discretion, may deliver such shares and/or cash to the spouse or to any
one or more dependents or relatives of the Participant, or if no spouse,
dependent or relative is known to the Company, then to such other person as the
Company may designate.
15. Transferability. Neither payroll deductions credited to a
Participant's account nor any rights with regard to the exercise of an option or
to receive shares under the Plan may be assigned, transferred, pledged or
otherwise disposed of in any way (other than by will, the laws of descent and
distribution or as provided in paragraph 14 hereof) by the Participant. Any such
attempt at assignment, transfer, pledge or other disposition shall be without
effect, except that the Company may treat such act as an election to withdraw
funds from an Purchase Period in accordance with paragraph 10.
16. Use of Funds. All payroll deductions received or held by the
Company under the Plan may be used by the Company for any corporate purpose, and
the Company shall not be obligated to segregate such payroll deductions.
17. Reports. Individual accounts will be maintained for each
Participant in the Plan. Statements of account will be given to Participants at
least annually, which statements will set forth the amounts of payroll
deductions, the Purchase Price, the number of shares purchased and the remaining
cash balance, if any.
18. Adjustments Upon Changes in Capitalization, Dissolution; or
Merger or Asset Sale.
(a) Changes in Capitalization. Subject to any required action by the
stockholders of the Company, the Reserves, as well as the price per share of
Common Stock covered by each option under the Plan which has not yet been
exercised, shall be proportionately adjusted for any increase or decrease in the
number of issued shares of Common Stock resulting from a stock split, reverse
stock split, stock dividend, combination or reclassification of the Common
Stock, or any other increase or decrease in the number shares of Common Stock
effected without receipt of consideration by the Company; provided, however,
that conversion of any convertible securities of the Company shall not be deemed
to have been "effected without receipt of consideration." Such adjustment shall
be made by the Board, whose determination in that respect shall be final,
binding and conclusive. Except as expressly provided herein, no issue by the
Company of shares of stock of any class, or securities convertible into shares
of stock of any class, shall affect, and no adjustment by reason thereof shall
be made with respect to, the number or price of shares of Common Stock subject
to an option. The Board may, if it so
8
<PAGE> 36
determines in the exercise of its sole discretion, make provision for adjusting
the Reserves, as well as the price per share of Common Stock covered by each
outstanding option, in the event the Company effects one or more
reorganizations, recapitalizations, rights offerings or other increases or
reductions of shares of its outstanding Common Stock.
(b) Change in Ownership, Dissolution or Liquidation. In the event of
a proposed sale of all or substantially all of the assets of the Company, the
merger of the Company with or into another corporation, in which the Company
will not be the surviving corporation (other than a reorganization effectuated
primarily to change the state in which the Company is incorporated), or a
reverse merger in which the Company is the surviving corporation but in which
securities possessing more than fifty percent (50%) of the total combined voting
power of the Company's outstanding securities are transferred to a person or
persons different from the person or persons holding those securities
immediately prior to the transfer, each option under the Plan shall be assumed
or an equivalent option shall be substituted by such successor corporation or a
parent or subsidiary of such successor corporation, unless the Board determines,
in the exercise of its sole discretion and in lieu of such assumption or
substitution, to shorten the Purchase Period then in progress by setting a new
Exercise Date (the "New Exercise Date"). If the Board shortens the Purchase
Period then in progress in lieu of assumption or substitution in the event of a
merger or sale of assets, the Board shall notify each Participant in writing, at
least ten (10) days prior to the New Exercise Date, that the Exercise Date for
his/her option has been changed to the New Exercise Date and that his/her option
will be exercised automatically on the New Exercise Date, unless prior to such
date he/she has withdrawn from the Purchase Period as provided in paragraph 10.
For purposes of this paragraph, an option granted under the Plan shall be deemed
to be assumed if, following the sale of assets or merger, the option confers the
right to purchase, for each share of option stock subject to the option
immediately prior to the sale of assets or merger, the consideration (whether
stock, cash or other securities or property) received in the sale of assets or
merger by holders of Common Stock for each share of Common stock held on the
effective date of the transaction (and if such holders were offered a choice of
consideration, the type of consideration chosen by the holders of a majority of
the outstanding shares of Common Stock); provided, however, that if such
consideration received in the sale of assets or merger was not solely common
stock of the successor corporation or its parent (as defined in Section 424(e)
of the Code), the Board may, with the consent of the successor corporation and
the Participant, provide for the consideration to be received upon exercise of
the option to be solely common stock of the successor corporation or its parent
equal in fair market value to the per share consideration received by holders of
Common Stock in the sale of assets or merger.
19. Amendment or Termination.
(a) The Board of Directors of the Company may at any time and for any
reason terminate or amend the Plan. Except as provided in paragraph 18, no such
termination can affect options previously granted, provided that an Purchase
Period may be terminated by the Board of Directors on any Exercise Date if the
Board determines that the termination of the Plan is in the best interests of
the Company and its stockholders. Except as provided in paragraph 18, no
amendment may make any change in any option theretofore granted which adversely
affects
9
<PAGE> 37
the rights of any Participant. To the extent necessary to comply with Rule 16b-3
or Section 423 of the Code (or any successor rule or provision or any other
applicable law or regulation), the Company shall obtain stockholder approval in
such a manner and to such a degree as required.
(b) Without stockholder consent and without regard to whether any
Participant rights may be considered to have been "adversely affected," the
Board (or its committee) shall be entitled to change the Purchase Periods, limit
the frequency and/or number of changes in the amount withheld during Purchase
Periods, establish the exchange ratio applicable to amounts withheld in a
currency other than U.S. dollars, permit payroll withholding in excess of the
amount designated by a Participant in order to adjust for delays or mistakes in
the Company's processing of properly completed withholding elections, establish
reasonable waiting and adjustment periods and/or accounting and crediting
procedures to ensure that amounts applied toward the purchase of Common Stock
for each Participant properly correspond with amounts withheld from the
Participant's Compensation, and establish such other limitations or procedures
as the Board (or its committee) determines in its sole discretion advisable
which are consistent with the Plan.
20. Notices. All notices or other communications by a Participant to
the Company under or in connection with the Plan shall be deemed to have been
duly given when received in the form specified by the Company at the location,
or by the person, designated by the Company for the receipt thereof.
21. Conditions Upon Issuance of Shares. Shares shall not be issued
with respect to an option unless the exercise of such option and the issuance
and delivery of such shares pursuant thereto shall comply with all applicable
provisions of law, domestic or foreign, including, without limitation, the
Securities Act of 1933, as amended, the Securities Exchange Act of 1934, as
amended, the rules and regulations promulgated thereunder, and the requirements
of any stock exchange upon which the shares may then be listed, and shall be
further subject to the approval of counsel for the Company with respect to such
compliance. As a condition to the exercise of an option, the Company may require
the person exercising such option to represent and warrant at the time of any
such exercise that the shares are being purchased only for investment and
without any present intention to sell or distribute such shares if, in the
opinion of counsel for the Company, such a representation is required by any of
the aforementioned applicable provisions of law. In addition, no purchase rights
shall be exercised or shares issued hereunder before the Plan shall have been
approved by stockholders of the Company as provided in paragraph 24.
22. Term of Plan. The Plan shall become effective upon the earlier to
occur of its adoption by the Board of Directors or its approval by the
stockholders of the Company. It shall continue in effect for a term of ten (10)
years unless sooner terminated under paragraph 19.
23. Additional Restrictions of Rule 16b-3. The terms and conditions
of options granted hereunder to, and the purchase of shares by, persons subject
to Section 16 of the Exchange Act shall comply with the applicable provisions of
Rule 16b-3. This Plan shall be deemed to contain, such options shall contain,
and the shares issued upon exercise thereof shall
10
<PAGE> 38
be subject to, such additional conditions and restrictions as may be required by
Rule 16b-3 to qualify for the maximum exemption from Section 16 of the Exchange
Act with respect to Plan transactions.
24. Stockholder Approval. Continuance of the Plan shall be subject to
approval by the stockholders of the Company within twelve (12) months before or
after the date the Plan is adopted. If such stockholder approval is obtained at
a duly held stockholders' meeting, the Plan must be approved by a majority of
the votes cast at such stockholders' meeting at which a quorum representing a
majority of all outstanding voting stock of the Company is, either in person or
by proxy, present and voting on the Plan. If such stockholder approval is
obtained by written consent, it must be obtained by the written consent of the
holders of a majority of all outstanding voting stock of the Company. However,
approval at a meeting or by written consent may be obtained by a lesser degree
of stockholder approval if the Board determines, in its discretion after
consultation with the Company's legal counsel, that such a lesser degree of
stockholder approval will comply with all applicable laws and will not adversely
affect the qualification of the Plan under Section 423 of the Code.
25. No Employment Rights. The Plan does not, directly or indirectly,
create any right for the benefit of any employee or class of employees to
purchase any shares under the Plan, or create in any employee or class of
employees any right with respect to continuation of employment by the Company,
and it shall not be deemed to interfere in any way with the Company's right to
terminate, or otherwise modify, an employee's employment at any time.
26. Effect of Plan. The provisions of the Plan shall, in accordance
with its terms, be binding upon, and inure to the benefit of, all successors of
each employee participating in the Plan, including, without limitation, such
employee's estate and the executors, administrators or trustees thereof, heirs
and legatees, and any receiver, trustee in bankruptcy or representative of
creditors of such employee.
27. Applicable Law. The law of the State of California will govern
all matters relating to this Plan except to the extent it is superseded by the
laws of the United States.
11
<PAGE> 39
EXHIBIT A
VERILINK CORPORATION
1996 EMPLOYEE STOCK PURCHASE PLAN
SUBSCRIPTION AGREEMENT
___ Original Application Enrollment Date:_____________
___ Change in Payroll Deduction Rate
___ Change of Beneficiary(ies)
1. I,________________________, hereby elect to participate in the
Verilink Corporation 1996 Employee Stock Purchase Plan (the "Employee Stock
Purchase Plan") and subscribe to purchase shares of the Company's Common Stock
in accordance with this Subscription Agreement and the Employee Stock Purchase
Plan.
2. I hereby authorize payroll deductions from each paycheck in
the amount of ____% of my Compensation on each payday (not to exceed 10%) during
the Purchase Period in accordance with the Employee Stock Purchase Plan. (Please
note that no fractional percentages are permitted.)
3. I understand that the payroll deductions shall be accumulated
for the purchase of shares of Common Stock at the applicable Purchase Price
determined in accordance with the Employee Stock Purchase Plan. I understand
that if I do not withdraw from an Purchase Period, any accumulated payroll
deductions will be used to automatically exercise my option.
4. I have received a copy of the complete "Verilink Corporation
1996 Employee Stock Purchase Plan." I understand that my participation in the
Employee Stock Purchase Plan is in all respects subject to the terms of the
Plan. I understand that the grant of the option by the Company under this
Subscription Agreement is subject to obtaining stockholder approval of the
Employee Stock Purchase Plan.
5. Shares purchased for me under the Employee Stock Purchase Plan
should be issued in the name(s) of:
---------------------------------
---------------------------------
6. I understand that if I dispose of any shares received by me
pursuant to this Plan within 2 years after the Enrollment Date (the first day of
the Purchase Period during which I purchased such shares) or within 1 year after
the Exercise Date (the date I purchased such shares), I will be treated for
federal income tax purposes as having received ordinary income at the time of
such disposition in an amount equal to the excess of the fair market value of
the shares at the time such shares were delivered to me over the price which I
paid for the shares. I hereby agree to notify the Company in writing within 30
days after the date of any such
A-1
<PAGE> 40
disposition and I will make adequate provision for Federal, State or other tax
withholding obligations, if any which arise upon the disposition of the Common
Stock. The Company may, but will not be obligated to, withhold from my
compensation the amount necessary to meet any applicable withholding obligation
including any withholding necessary to make available to the Company any tax
deductions or benefits attributable to sale or early disposition of Common Stock
by me. If I dispose of such shares at any time after the expiration of the
2-year and 1-year holding periods described above, I understand that I will be
treated for federal income tax purposes as having received income only at the
time of such disposition, and that such income will be taxed as ordinary income
only to the extent of an amount equal to the lesser of (1) the excess of the
fair market value of the shares at the time of such disposition over the
purchase price which I paid for the shares, or (2) 15% of the fair market value
of the shares on the first day of the Purchase Period. The remainder of the
gain, if any, recognized on such disposition will be taxed as capital gain. I
also understand that the foregoing income tax consequences are based on current
federal income tax law and that the Company is not responsible for advising me
of any changes in the applicable tax rules.
7. I hereby agree to be bound by the terms of the Employee Stock
Purchase Plan. The effectiveness of this Subscription Agreement is dependent
upon my eligibility to participate in the Employee Stock Purchase Plan.
8. In the event of my death, I hereby designate the following as
my beneficiary(ies) to receive all payments and shares due me under the Employee
Stock Purchase Plan.
NAME: (Please print)
------------------------------------------------------------
(First) (Middle) (Last)
Relationship:
------------------------------------------------------------
Address:
------------------------------------------------------------
------------------------------------------------------------
------------------------------------------------------------
Employee's Social
Security Number:
------------------------------------------------------------
Employee's Address:
------------------------------------------------------------
------------------------------------------------------------
------------------------------------------------------------
A-2
<PAGE> 41
I UNDERSTAND THAT THIS SUBSCRIPTION AGREEMENT SHALL REMAIN IN EFFECT THROUGHOUT
SUCCESSIVE OFFERING PERIODS UNLESS TERMINATED BY ME
Employee's Signature:
-----------------------------------------------------------
Dated:
-----------------------------------------------------------
Signature of spouse
if beneficiary is other
than spouse:
-----------------------------------------------------------
Dated:
-----------------------------------------------------------
A-3
<PAGE> 42
EXHIBIT B
VERILINK CORPORATION
1996 EMPLOYEE STOCK PURCHASE PLAN
SUBSCRIPTION AGREEMENT
NOTICE OF WITHDRAWAL
The undersigned participant in the Purchase Period of the
Verilink Corporation 1996 Employee Stock Purchase Plan which began on
_________________, 19___, (the "Enrollment Date") hereby notifies the Company
that he or she hereby withdraws from the Purchase Period. He or she hereby
directs the Company to pay to the undersigned as promptly as practicable all the
payroll deductions credited to his or her account with respect to such Purchase
Period. The undersigned understands and agrees that his or her option for such
Purchase Period will be automatically terminated. The undersigned understands
further that no further payroll deductions will be made for the purchase of
shares in the current Purchase Period and the undersigned shall be eligible to
participate in succeeding Purchase Periods only by delivering to the Company a
new Subscription Agreement.
Name and Address
of Participant
-----------------------------------------------------------
-----------------------------------------------------------
-----------------------------------------------------------
Signature
-----------------------------------------------------------
Date:
-----------------------------------------------------------
B-1
<PAGE> 43
[FORM OF FRONT OF PROXY CARD]
PROXY
VERILINK CORPORATION
145 BAYTECH DRIVE
SAN JOSE, CA 95134
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
FOR THE ANNUAL MEETING ON NOVEMBER 23, 1998.
Leigh S. Belden and John C. Batty, or either of them, each with the power of
substitution, are hereby authorized to represent and vote the shares of Verilink
Common Stock which the undersigned may be entitled to vote, with all the powers
which the undersigned would possess if personally present, at the Annual Meeting
of Stockholders of Verilink Corporation (the "Company"), to be held on Monday,
November 23, 1998 at the Company's corporate offices at 145 Baytech Drive, San
Jose, California, at 10:00 am Pacific Standard Time, and any adjournment or
postponement thereof.
<PAGE> 44
[FORM OF BACK OF PROXY CARD]
Please mark your choice like this |X| in blue or black ink.
Shares represented by this proxy will be voted as directed by the
stockholder. IF NO SUCH DIRECTIONS ARE INDICATED, THE PROXIES WILL HAVE
AUTHORITY TO VOTE FOR THE ELECTION OF ALL DIRECTORS, AND FOR ITEM 2, 3 AND 4.
- --------------------------------------------------------------------------------
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE
ELECTION OF DIRECTORS AND FOR PROPOSALS 2, 3 AND 4.
- --------------------------------------------------------------------------------
1. ELECTION OF CLASS II DIRECTORS (OR IF THE NOMINEES ARE NOT AVAILABLE FOR
ELECTION, SUCH SUBSTITUTES AS THE BOARD OF DIRECTORS OR THE PROXY HOLDERS
MAY DESIGNATE):
NOMINEES: HOWARD ORINGER AND JOHN A. MCGUIRE
[ ] FOR [ ] WITHHELD
FOR, except vote withheld from the following nominee:
------------------------------------------
2. To ratify and approve an amendment to the Company's Amended and Restated
1993 Stock Option Plan to increase the number of shares reserved for
issuance thereunder from 4,050,000 shares to 5,050,000 shares.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
3. To ratify and approve an amendment to the Company's 1996 Employee Stock
Purchase Plan to increase the number of shares reserved for issuance
thereunder from 300,000 shares to 500,000 shares.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
4. To ratify and approve the appointment of PricewaterhouseCoopers LLP as the
Company's independent accountants for the fiscal year ending June 27, 1999:
[ ] FOR [ ] AGAINST [ ] ABSTAIN
5. In their discretion, the Proxies are authorized to vote upon such other
business as may properly come before the Annual Meeting.
MARK HERE FOR
ADDRESS CHANGE
AND NOTE AT RIGHT [ ]
Please sign exactly as your name appears herein. Joint owners should each sign.
When signing as attorney, executor, administrator, trustee or guardian, please
give full title as such.
Signature Date
------------------------------------- ----------------------
Signature Date
------------------------------------- ----------------------
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY CARD PROMPTLY USING THE ENCLOSED
REPLY ENVELOPE.
